Cantor Fitzgerald initiated coverage of Canadian cannabis company Sundial Growers Inc. SNDL, +17.80% on Wednesday with a neutral rating after a retail investor-fueled rally pushed the stock up 21 times from its late-October bottom of 14 cents to its recent Feb. 10 peak of $2.95. “Thus, even though fundamentals have remained mixed, with an ongoing market-share loss according to the latest scanner data, and despite a 3Q20 reported net sales decline of 36% seq (-54% YoY), the run-up in the share price enabled the company to raise equity and convert warrants and debt,” analyst Pablo Zuanic wrote in a note to investors. That has boosted the penny stock’s cash holdings to an estimated C$700 million ($553.5 million) at end February from about C$26 million at the end of September, he wrote. “In an industry that is quickly consolidating, this puts the company in a good position to acquire smaller companies that have developed solid niches in parts of the Canadian market or overseas,” said the note. “We believe that SNDL is on the lookout for opportunities and that this may itself trigger defensive M&A action among other companies (we see the recent HEXO+Zenabis (N) merger as one example).” However, given the stock’s valuation and the volatility in its share price, Zuanic is not recommending investors take an active position. The stock is trading at 43 times enterprise value to current sales, which is far above its peer group average. The analyst assigned Sundial a 12-month price target of $1.15, compared with its current price of $1.39 at Tuesday’s close. Sundial has had a checkered history and once had a valuation of $1 billion. The stock has gained 31% in the last 12 months, while the Cannabis ETF THCX, +8.38% has gained 138% and the S&P 500 SPX, +1.42% has gained 41%.
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