(SNDL)(NASDAQ) Worth going long on Sundial Inc? We inspect 'under the hood' of this fascinating Canadian Cannabis Player.
The potential for federal cannabis legalization in the U.S. remains a significant catalyst for SNDL and the broader cannabis industry. Can Sundial reclaim its former highs?
Comprehensive Technical Financial and Fundamental Analysis Report: SNDL Inc. (SNDL) A Special Market Report by #TriFusionAI and #swazcharts Date: October 13, 2024 Current Price: $1.95 (+1.30%). Market Capitalisation 527.50M.
“SNDL has seen revenue growth through its diversification into the liquor retail business.”
Sundial Inc Company Data C/O TradingView SNDL Market Data
SNDL, Inc. is a licensed producer that crafts small-batch cannabis using state-of-the-art indoor facilities. It operates through the following segments: Liquor Retail, Cannabis Retail, Cannabis Operations, and Investments. The Liquor Retail segment consists of wines, beers, and spirits through owned liquor stores. The Cannabis Retail segment comprises the private sale of adult-use cannabis through owned and franchised retail cannabis stores. The Cannabis Operations covers the cultivation, distribution and sale of cannabis for the adult-use, and medical markets domestically and for export. The Investments segment includes the deployment of capital to investment opportunities. The company was founded by Stanley J. Swiatek on August 19, 2006 and is headquartered in Calgary, Canada.
“The potential for federal cannabis legalization in the U.S. remains a significant catalyst for SNDL and the broader cannabis industry.”
Setting the Scene: SNDL Inc.
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“The Ichimoku Cloud analysis also shows that the stock may be poised for an upward move if it breaks through resistance at $1.80. The MACD has just crossed bullishly, supporting the upward trend.”
SNDL Inc. is a Canadian cannabis and liquor company that operates across two core verticals: cannabis cultivation, production, and distribution, and alcoholic beverages through its retail network. SNDL has been a notable player in the cannabis industry, navigating a highly competitive and evolving market with regulatory complexities in both Canada and the U.S.
The cannabis industry has been under significant pressure in recent years due to pricing compression, oversupply, and regulatory delays in the U.S., particularly regarding federal legalization. SNDL has worked to mitigate these challenges by diversifying its business by acquiring retail liquor assets. Still, the stock has remained highly volatile, reflecting investor concerns about the sustainability of its business model and long-term profitability.
“profitability remains a challenge, particularly in its cannabis segment.”
Fundamental Analysis and Financial Performance, SNDL.
Revenue and Profitability: SNDL has seen revenue growth through its diversification into the liquor retail business, which has provided some stability to its operations. However, profitability remains a challenge, particularly in its cannabis segment, where price competition and regulatory delays have squeezed margins. Investors should closely monitor any updates on U.S. legalization and SNDL's ability to achieve profitability in both its core verticals.
Cash Burn: SNDL's cash burn rate remains a concern, especially in the cannabis business, where operational costs are high. However, its retail liquor operations have provided some positive cash flow, helping to offset the burn rate in the cannabis segment. The company's cash position remains solid for now, but further cash burn without profitability improvements could pressure the need for additional financing.
Liquidity and Funding: SNDL's liquidity position is relatively strong, with sufficient cash reserves to meet its short-term obligations. However, the company’s continued investments in growth, especially within the cannabis space, mean that liquidity will need to be closely monitored.
“SNDL's liquidity position is relatively strong, with sufficient cash reserves to meet its short-term obligations.”
Key Developments.
Expansion into the U.S. Market: The potential for federal cannabis legalization in the U.S. remains a significant catalyst for SNDL and the broader cannabis industry. Any news related to U.S. regulatory changes will likely impact the stock. SNDL’s ability to successfully enter the U.S. market, should legalization occur, will be critical to its long-term growth.
Retail Liquor Strategy: The acquisition of liquor retail operations has provided SNDL with more stable revenue streams and reduced its reliance on the volatile cannabis market. Investors will be watching how this diversification plays out in terms of profitability and overall company strategy.
Mergers and Acquisitions: SNDL has been active in the M&A space, acquiring cannabis and liquor assets to bolster its portfolio. While this strategy has led to revenue growth, it also increases the company’s operational complexity and requires careful integration to avoid inefficiencies.
“Sundial recently completed acquisitions and partnerships, which strengthened its balance sheet, allowing it to explore more vertical integration.”
Improving Financials: Sundial recently completed acquisitions and partnerships, which strengthened its balance sheet, allowing it to explore more vertical integration and revenue streams. The company has a strong cash position, and its debt-to-equity ratio is low, reducing insolvency risks.
Industry Growth: The cannabis industry is projected to grow at a rapid pace, and Sundial is strategically positioned with diversified offerings in both medical and recreational cannabis.
Technical Indicators: Sundial has been forming a bullish triangle pattern, often indicating a potential breakout. The Ichimoku Cloud analysis also shows that the stock may be poised for an upward move if it breaks through resistance at $1.80. The MACD has just crossed bullishly, supporting the upward trend.
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Investor Sentiment.
Market Outlook: Investor sentiment remains mixed, as the cannabis industry has been under significant pressure, but SNDL's diversification into liquor retail has provided some optimism. Analysts are divided, with some pointing to the company’s potential upside should U.S. cannabis legalization occur, while others remain cautious due to ongoing profitability challenges and regulatory uncertainty.
“The VWAP currently sits around $2.00, indicating that the stock is trading slightly below the average price of recent sessions.”
Technical Analysis.
“$2.00 & $2.26 are key levels that price needs to close over to signal bullish intention, in my opinion, based on my chart analysis.-Swazers of Swazers Charts.”
Exponential Moving Averages (EMAs) 21 EMA (Short-Term): $2.00 50 EMA (Mid-Term): $2.04 100 EMA (Long-Term): $2.03 200 EMA (Major Indicator): $1.96.
“Sundial operates in the cannabis sector, which is expected to see significant growth as federal legalization discussions advance in the US. “
“SNDL Inc. presents a speculative opportunity for investors with a higher risk tolerance.”
Ascending Channel.
The stock has been trading within an ascending channel, with the lower boundary of the channel acting as support. SNDL is currently near the lower boundary of this channel, suggesting that it could find support around the current price levels. A bounce of this lower boundary would signal a continuation of the long-term bullish trend. Conversely, a break below the channel would indicate further downside potential.
Fibonacci Retracement Levels.
Using the recent uptrend from the lows of mid-2022, key Fibonacci retracement levels are: 23.6% Retracement Level: $2.15 38.2% Retracement Level: $2.50 50% Retracement Level: $3.00.
The stock is trading below the 23.6% retracement level, indicating some weakness in the short term. A move above this level would signal a potential recovery, with the next target being the 38.2% retracement level at $2.50.
Volume and Market Sentiment.
Market Sentiment: Sundial operates in the cannabis sector, which is expected to see significant growth as federal legalization discussions advance in the US. The stock has garnered attention from retail investors, bolstered by strong trading volumes and speculative interest, driving its momentum higher.
On-Balance Volume (OBV) Indicator.
The OBV has been flat, indicating a lack of strong buying or selling pressure. This suggests that the market is waiting for clearer signals before committing to a direction. A rise in OBV alongside price action would confirm a bullish move, while a drop in OBV would confirm a bearish outlook.
Accumulation/Distribution Line (A/D Line)
The A/D line is showing a slight accumulation trend, indicating that some investors may be positioning for a potential upside move. However, the accumulation is not strong enough to suggest a major bullish shift at this time.
Volume Analysis.
Trading volumes have been relatively low in recent weeks, reflecting investor caution. Any significant price movement, particularly a breakout above key resistance levels, would need to be accompanied by higher trading volumes to confirm the move.
VWAP (Volume-Weighted Average Price)
The VWAP currently sits around $2.00, indicating that the stock is trading slightly below the average price of recent sessions. A move above the VWAP would signal that buyers are gaining control, which could attract short-term traders looking for a reversal.
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Financial Gearing: Under the Hood.
Debt-to-Equity Ratio: 0.50 SNDL has a moderate debt-to-equity ratio, reflecting its reliance on both debt and equity to finance its operations. While the company's debt levels are manageable, any further increases in leverage could raise concerns about its ability to cover its obligations, particularly if profitability does not improve.
Interest Coverage Ratio: 2.0 The interest coverage ratio indicates that SNDL can cover its interest expenses with operating income, but the margin is relatively thin. This suggests that the company has limited room for error and could face challenges if its cash flow weakens.
Liquidity Ratios.
Current Ratio: 1.8 SNDL’s current ratio suggests that it has a strong liquidity position, with sufficient assets to cover its short-term liabilities. This provides the company with a buffer to navigate near-term challenges.
Quick Ratio: 1.4 The quick ratio confirms that SNDL can meet its immediate obligations without relying on inventory. This is a positive sign for its liquidity, but the company’s reliance on external financing remains a potential concern.
SNDL Scorecard.
Support and Resistance Levels.
Support Levels: $1.85, $1.75 Resistance Levels: $2.00 (21 EMA), $2.15 (23.6% Fibonacci).
SNDL is currently testing the support at $1.85, and a break below this level could lead to further downside toward $1.75. On the upside, the stock needs to break above $2.00 to confirm a short-term bullish reversal. A move above $2.15 (23.6% Fibonacci) would further confirm the reversal, with the next target being $2.50.
Cash Burn Status.
SNDL’s cash burn remains a concern, particularly in its cannabis operations. While the company’s liquor retail business has provided some stability, the overall cash burn rate remains high, especially as the company continues to invest in growth. The company has sufficient liquidity for now, but further dilution or debt issuance may be required if profitability does not improve.
RAG Status: Amber – Manageable in the short term, but cash burn must be monitored closely.
RAG Status Summary Amber, SNDL.
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Conclusion and Final Thoughts, Sundial SNDL.
SNDL Inc. presents a speculative opportunity for investors with a higher risk tolerance. The company’s diversification into the liquor retail business has provided some stability, but profitability challenges in the cannabis segment remain a significant headwind.
The stock is trading near key support levels, and a break below $1.85 could signal further downside. However, if the stock can break above $2.00 and maintain momentum, it could signal a potential reversal. Investors should be cautious of the company’s cash burn rate and its reliance on external financing.
For those willing to take on the risk, SNDL could provide substantial upside if it can successfully navigate the challenges in the cannabis market and capitalize on potential regulatory changes in the U.S.
"Risk comes from not knowing what you're doing." – Warren Buffett.
#TriFusionAI © 2024 Bob Smith and John Swarbrick Follow us on Twitter: @BobSmithMSc and @SwazersC Disclaimer: This report is for educational purposes only and does not constitute financial advice. Consult a financial professional before making any investment decisions. Errors and omissions may be present. Follow on X
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