Why SNDL Stock Is a Falling Knife Investors Shouldn’t Try to Catch

The hysteria surrounding cannabis stocks has resulted in quite the rollercoaster for investors in Sundial Growers (NASDAQ:SNDL) and SNDL stock…

Of course, following the bearish Feb. 8 article I wrote on SNDL stock, shares more than tripled in a few days. However, since then, shares have settled down to approximately the same levels as a month ago.

So what’s changed?

Well, really, not much. I’m still outright bearish on this stock, and am happy to explain why.

Valuation Concerns Abundant for SNDL Stock

Investors can gobble up shares of SNDL stock for a “measly” 40-times sales, or 5-times book. In this hyper-inflated market, I guess that’s cheap. Let’s take a look at the company’s major Canadian peers in this space for reference points (numbers are MRQ, not TTM):

  • Canopy Growth (NASDAQ:CGC): 31-times sales, 3.9-times book
  • Aurora Cannabis (NYSE:ACB): 6.5-times sales, 1.1-times book
  • Cronos Group (NASDAQ:CRON): 77-times sales, 2.1-times book
  • Hexo Corp. (NYSE:HEXO): 11-times sales, 1.9-times book

I excluded Aphria (NASDAQ:APHA) from this list, due to the pending merger with Tilray (NASDAQ:TLRY) and the complications this merger provides for the numbers.

Well, SNDL stock isn’t the cheapest car in the lot. It’s also not the most expensive. Indeed, the argument could be made that the market is pricing this stock correctly. When one considers the fact Sundial’s a relatively small producer with more upside, a higher valuation to its peers may make sense.

However, I think there’s two key items of concern to note with these valuations.

First, these Canadian producers are handcuffed due to listing requirements in the U.S., forced to play in their own back yard right now. Yes, these companies are engaging in some small, strategic moves to gain a foothold in the U.S. market. However, on the whole, these companies lack the meaningful U.S. exposure MSOs like Curaleaf (OTC:CURLF) provide investors right now. Concordantly, on a valuation basis compared to MSOs, all of these companies in the above list look expensive.

Second, it’s important to remember that…

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