We recently started a series called “Penny Stock of the Day”. These ideas are geared for traders with an extremely high risk appetite.
Our Penny Stock of the Day is chosen by screening for stocks under $5 and then applying technical analysis on the shortlisted set of penny stocks showing unusual volume. When making these trades, please make sure to pay vigilant attention to pricing moves and have a strict stop loss in place to avoid significant losses.
Penny Stock of the Day: Sundial Growers Inc. (NASDAQ: SNDL)
Today’s penny stock pick is the cannabis products company, Sundial Growers Inc. (NASDAQ: SNDL)
Sundial Growers Inc. engages in production and marketing of cannabis products for the adult-use market in Canada. It produces and distributes inhalable products, such as flower, pre-rolls, and vapes. The company offers its products under the Top Leaf, Sundial Cannabis, Palmetto, and Grasslands brands. It operates in two segments: Cannabis segment and Ornamental Flowers segment. Its Cannabis segment derives majority revenue.
Website: www.sundialcannabis.com
Latest 10-k report: https://sec.report/Document/0001564590-21-013936/
Analyst Consensus: Not Covered By Analysts.
Potential Catalysts / Reasons for the Hype:
- The news that the U.S. House of Representatives is preparing to vote on the federal legalization of marijuana for the second time in history next week. The bill aims to deschedule cannabis from the list of federally controlled substances and promote social equity in the industry.
- The company is scheduled to report fourth-quarter (Q4) earnings on March 30.
- The news of a C$100 million share repurchase program.
- Upcoming acquisition of Alcanna, Canada’s largest private liquor retailer. The $346 million deal is expected to be finalized by the end of March. When the deal finalizes, Alcanna can help Sundial build a vertically integrated portfolio of Canadian brands.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Double Bottom Pattern Breakout: The daily chart shows that the stock has broken out of a double bottom pattern, which is shown in purple color. This is a possible bullish indication.
SNDL – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line is above the -DI line, and the ADX line is currently moving higher from below the +DI and -DI lines.
#3 Price above MA: The stock is currently above its 50-day SMA, indicating that the bulls have currently gained control.
#4 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
#5 Symmetrical Triangle Pattern Breakout: The weekly chart shows that the stock has currently broken out a symmetrical triangle pattern, which is marked as pink color lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out. This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend.
SNDL – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#7 MACD above Signal Line: In the weekly chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for SNDL is above the price of $1.11.
Target Prices: Our first target is $2.00. If it closes above that level, the second target price is $3.20.
Stop Loss: To limit risk, place a stop loss at $0.60. Note that the stop loss is on a closing basis.
Our target potential upside is 80% to 188%.
For a risk of $0.51, our first target reward is $0.89, and the second target reward is $2.09. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Potential Risks / Red Flags:
- The company has a limited operating history and a history of net losses.
SNDL – Consolidated Statements of Loss
- Corporate Insiders Sold Shares Worth $10.8K in the Last 3 Months.
Insiders | Source: TipRanks.com
- Hedge Funds Decreased Holdings by 844.0K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company has been subject to litigation, regulatory or agency proceedings, investigations, and audits from time to time.
- In 2019, SNDL entered into a settlement agreement with another licensed cannabis producer in connection with its non-delivery of cannabis under a supply agreement and agreed to pay penalties in the amount of $1.7 million.
- On May 7, 2020, the Company and certain of its current and former directors and officers were named as defendants in a lawsuit, captioned SUN, a Series of E Squared Investment Fund, LLC et al. v. Sundial Growers Inc. et al., Case No. 1:20-cv-03579. The complaint asserts claims for alleged violations of U.S. federal securities laws.
- In connection with SNDL’s initial public offering, the company and certain of its current and former officers and directors, as well as the underwriters of its IPO, were named as defendants in several putative shareholder class action lawsuits filed between September 9, 2019, and November 1, 2019.
- The company was previously sued as it failed to disclose it had product returned to it because it contained mold and bits of rubber gloves.
- Despite being a loss-making company, the executives are being paid significant compensation.
SNDL – Summary Compensation Table
As you can see, today’s featured penny stock offers big upside potential… but it also comes with a number of risks and red flags. As always, when dealing with penny stocks, we advise caution before entering into such high-risk ventures. Remember to think before you trade… understand the risks… and if you decide to trade, stick to your stop-losses!
Happy Trading!
— Trades of the Day Research Team
READ BEFORE TRADING PENNY STOCKS: The allure of penny stocks lies in their potential to deliver massive gains in a short period of time. However, in exchange for that opportunity, most penny stocks carry tremendous risk. They can be extremely volatile and are susceptible to “pump and dump” schemes and fraud.
Unlike regular stocks, the financial condition of most penny stock companies can be extremely difficult to analyze, as the majority of such stocks are traded on over-the-counter (OTC) exchanges, which are typically less transparent and less regulated than the major exchanges. In fact, in the penny stock space, it’s often easier to spot warning signs and red flags than it is to identify a sound investment. Nevertheless, we do our best to identify short-term trade opportunities in this exciting space because we know some of our readers are looking for high-risk, high-reward ideas. We just urge you to make sure you fully understand the risks before making any of these trades.
Nvidia's Secret Partner... This Is The New AI Chip Powerhouse [sponsor]I bet you've never heard of it... but this newly public company is set to become key to Nvidia's seat on the AI throne. And for now... you can get in while it's still cheap. Details Here! Find Out What It Is Right Here.