Key points:
- Sundial Growers is up 1000% this morning
- This is a purely nominal price change, not a real one
- This doesn't reverse the 96% fall since floation
Sundial Growers (NASDAQ: SNDL) stock has fallen 96% from its peak and today it has jumped 1,000%. This will please long term holders of course for one thousand is more than one hundred, right? Except that's not how percentages work and anyway, the stock price rise today is almost entirely nominal not real. The true rise in Sundial stock today is some 4% (that is, the excess over one thousand percent divided by 10). Which is nice but doesn't in fact go all that far to reversing the 96% fall.
One trick here is simply how percentages do work with stock prices. Sundial floated in the $8 to $9 range back in 2019 and peaked at $12.85. Yesterday it was trading at 30 cents. So there's the 96% decline from the peak. The price today is $3.30 (still highly variable, but that at pixel time) which is the 1,000% and change rise from yesterday. But that's clearly not back up to the peak so no, a thousand percent rise doesn't beat a near 100% fall because the denominator changed.
As to what produced the rise today this is our old friend, the reverse stock split or, for Brits, a consolidation. This changes the nominal price of the stock but not the real. Here we've a one for ten reverse split, meaning that those who yesterday owned ten shares today own one at this new price. The reason for the consolidation was that one so typical for NASDAQ, being in breach of the $1 minimum price in order to maintain the listing and quotation.
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The reason for consolidations – and stock splits – is simply fashion. The New York markets just think that stock prices should be between $10 and $100. London thinks £1 and £10. That's how we know that it's fashion, that difference. The Americans take this further and think that anything under a $1 is a “penny stock” which, by definition, it is. But also they think that a penny stock shouldn't have a full quotation or listing. Thus the NASDAQ minimum price level. And so consolidations in order to get the price back up and keep the listing rather than falling back to the OTC markets.
As to Sundial Grower's real prospects, they're in the cannabis trade. And that's not really worked out for anyone at all. Yes, legalisation has happened but then two other things have as well. One is that many piled into the marketplace and that doesn't produce profits for excessive competition never does. What might well be a great marketplace for half a dozen people gets a bit crowded if there are 20 or 50.
The other issue has been that the varied authorities didn't just allow cannabis to become legal. They decided that they needed to “order” the market and, of course, tax it heavily. The net result of these “designed” markets has been that – as it is said at least – in California the legal weed is both more expensive and worse than the regular black market kind. Which makes it very difficult to make a good profit as a legal weed supplier which, of course, a listed company is going to have to be.
Sundial's current price rise is purely nominal. As to whether there will be a real recovery, well, difficult to say really.