We recently started a series called “Penny Stock of the Day”. These ideas are geared towards 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: SNDL Inc. (NASDAQ: SNDL)
Today’s penny stock pick is the licensed producer that crafts small-batch cannabis, SNDL Inc. (NASDAQ: SNDL).
SNDL Inc. engages in the production, distribution, and sale of cannabis products in Canada. The company operates through Liquor Retail, Cannabis Retail, Cannabis Operations, and Investments segments. It engages in the cultivation, distribution, and sale of cannabis for the adult-use and medical markets; sells wines, beers, and spirits through wholly owned liquor stores; and private sale of recreational cannabis through wholly owned and franchised retail cannabis stores.
In addition, the company produces and distributes inhalable products, such as flower, pre-rolls, and vapes. It offers its products under the Top Leaf, Sundial Cannabis, Palmetto, and Grasslands brands. The company was formerly known as Sundial Growers Inc. and changed its name to SNDL Inc. in July 2022.
Website: https://www.sndlgroup.com
Latest 10-k report: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001766600/2c5f68a5-17b0-42b9-ba41-d97a639946a3.pdf
Analyst Consensus: Not Covered by Wall Street analysts.
Potential Catalysts / Reasons for the Hype:
- The company successfully completed the acquisition of Indiva Group’s business and assets for an estimated value of $22.7 million. The deal encompasses seven brands and fifty-three SKUs, positioning SNDL as Canada’s leading producer of cannabis edibles.
- Hedge Funds Increased Holdings by 111.4K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- Corporate Insiders placed Informative Buys of Shares Worth $85.6K in the Last 3 Months.
Insiders | Source: TipRanks.com
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Symmetrical Triangle Pattern: The daily chart shows that the stock has currently formed a symmetrical triangle pattern, which is marked as purple 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 – 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 MAs: The stock is currently above its 50-day as well as 200-day SMA, indicating that the bulls have currently gained control.
#4 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.
#5 Above Support Area: The weekly chart shows that the stock is currently trading above a support area, which is marked as a pink color dotted line. This looks like a good area for the stock to move higher. The stock is also trading above its 50-week SMA, indicating that the bulls are gaining control.
SNDL – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.
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 $2.30.
Target Prices: Our first target is $3.20. If it closes above that level, the second target price is $4.00.
Stop Loss: To limit risk, place a stop loss at $1.80. Note that the stop loss is on a closing basis.
Our target potential upside is 39% to 74%.
For a risk of $0.50, our first target reward is $0.90, and the second target reward is $1.70. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x to 3x more potential upside than downside.
Potential Risks / Red Flags:
- The company has a history of net losses. SNDL reported net losses of $172.0 million and $379.8 million, for the fiscal years ended December 31, 2023, and 2022.
SNDL – Consolidated Statements of Operations
- The company faces the volatility of wholesale price of cannabis and inflation risk in the liquor and cannabis markets which impacts its production.
- Any fluctuations in the exchange rate of the Canadian dollar against the U.S. dollar could harm the company’s results of operations.
- SNDL faces significant competition from the illegal cannabis market.
- The company has customer concentration risk, as SNDL’s top five customers in the cannabis operations segment accounted for 83% of the revenue for the year ended December 31, 2023.
- Despite being a loss-making company, the executives are being paid significant compensation.
SNDL – Executive Compensation
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.
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Source: Trades of the Day