Sundial Growers share price rises in pre-market today stock trading action after the company released its financial results covering the fourth quarter of 2020 as well as its results for the year ended December 2020.
According to the press release, Sundial’s net revenues in 2020 fell 4%, ending the 12-month period at C $ 60.92 million due to lower prices resulting from the ‘industry-wide price squeeze. “.
The company said its gross selling price fell from $ 6.24 per gram in 2019 to $ 5.05 per gram last year. Sundial also predicts that downward pricing pressures will continue as competition in the cannabis industry continues to increase.
Meanwhile, Sundial’s gross profits at the end of the year fell 46% to C $ 9.18 million due to lower prices and a shift towards production of high-cost products.
As a result, Sundial posted a larger loss of $ 206 million during the year, which is a 45% jump from the $ 142 million lost by the company in 2019.
During this period, the Company recorded an impairment charge of $ 79 million as well as approximately $ 64.5 million of inventory write-down, which represents approximately 70% of the Company’s losses.
However, the company managed to store cash during the period, with the amount of unrestricted cash reaching $ 719 million as of March 15 following its latest stock offerings.
Meanwhile, FactSet’s estimates for the fourth quarter point to C $ 11.1 million in revenue for Sundial, meaning the company has exceeded market expectations for the period as it recorded 13. $ 6 million in sales over the three month period.
Investors appear to be reacting positively to the news, as Sundial Growers shares jump 5% in pre-market stock this morning to $ 1.62 per share after another 2% rise seen yesterday.
Perhaps the optimistic tone of the management team is contributing to this pre-commercialization leap, as the company’s chief executive, Zach George, said the company has “redefined its strategy” while proceeding with changes. major adjustments within the organization, including paying off a significant portion of its debt, simplifying its business model and reducing its cost structure.
These goals appear to have been met in the previous year, with the company paying more than $ 200 million in corporate debt while reducing its operating expenses by 20%, mainly by reducing its workforce.
For now, the market appears to remain focused on how the company plans to deploy the large amount of cash it has accumulated due to its stock dilution, perhaps considering a strategic acquisition that can help. the company to orient its business model towards retail. and far from culture.
In this regard, the company said it continues to “explore strategic opportunities to deploy capital with an emphasis on maximizing shareholder value”.
He added: “This strategy may include a potential merger or other business combination, direct or indirect investments in other cannabis companies both in Canada, the United States and abroad.”
What’s next for Sundial Growers shares?
If Sundial’s stock price maintains those pre-market gains once the bell rings, the company’s market cap would hit around $ 1.79 billion. If we subtract the amount of cash on hand reported by the company, that would translate to a price / sales ratio of about 20 times the sales of the company last year, which is not too far from the industry average, but it’s pretty tight for a company whose business model is still in the works.
At this point, the most important catalyst for Sundial would be its strategic approach to how these funds are deployed. If the company were to dump the money into unproductive investments and minor transactions, it is likely that investors will avoid the stock as it will lose its current luster.
On the other hand, closing an attractive deal with a company with a strong retail presence in the United States or Canada could increase its valuation.