We recently compiled a list of the 10 Best Liquor Stocks To Buy According to Short Sellers. In this article, we are going to take a look at where SNDL Inc. (NASDAQ:SNDL) stands against the other liquor stocks.
Short selling is a strategy where traders profit from the decline in the price of a stock or other securities. It is when traders can borrow shares and sell them, hoping to purchase them back when they are cheaper. The strategy allows traders to capitalize on stocks or markets they feel are overvalued, giving them more opportunities to make a profit.
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Short sellers in America had a tough year in 2024, as the broader US market posted gains of over 23%, building on a gain of over 24% from 2023. The two-year uptick of 53% is the highest since the almost 66% rally in 1997 and 1998. As a result, short sellers were down $180.9 billion in last year’s mark-to-market losses, representing a decrease of approx. 15% on an average short interest of $1.2 trillion. The sectors where shorts performed the worst are, unsurprisingly, Information Technology and Communication Services, as tech stocks surged the most last year. However, the European market has recently been a popular playground for short sellers amid the region’s sluggish economic and earnings growth and political instability in France and Germany.
The alcohol sector also seems like an attractive option for short selling, especially after the recent advisory by the US Surgeon General Vivek Murthy that consuming alcohol increases the risk of at least seven types of cancer, including breast, colon, and liver cancer. The report claims that alcohol consumption in the US is directly linked to approximately 100,000 cancer cases and 20,000 deaths annually. As such, Mr. Murthy has proposed to put cancer warning labels on alcoholic beverages, signaling a shift toward more aggressive tobacco-style regulation for the sector if adopted. The Surgeon General also called to reassess the guidelines on alcohol consumption limits, so consumers can weigh the risks more accurately.
The advisory also managed to impact the financial market, sending down the stocks of several major alcohol players in the country, in some cases by over 3%. This comes at a time when the alcohol sector is already facing some major headwinds, including a downturn in sales following the pandemic boom, threats of looming tariffs, competition from alternative beverages, and the rapidly rising trend of abstinence. More and more Americans, especially the younger generations, are becoming increasingly conscious about health and wellness and saying ‘no’ to alcohol. According to the National Institute on Alcohol Abuse and Alcoholism, America’s per capita annual consumption of alcohol in 2022 was 2.5 gallons, down from 3.28 gallons in the early 1980s.
However, this shift has marked a new opportunity for the alcohol industry, which has responded by flooding the market with a wide range of low- and no-alcohol beverages. The strategy seems to be paying off, as according to Nielsen, non-alcoholic beer, wine, and spirits collectively surpassed $565 million in sales in 2023, up 35% from the year before.
There are also doubts over how effective putting warning labels on alcoholic beverages will be since ingrained habits are hard to change and similar labels have done little to curb smoking. Some experts remain optimistic. Paul Gilbert, an associate professor at the University of Iowa College of Public Health, believes that it is unlikely that people will immediately change their drinking habits following the Surgeon General’s report, but it could eventually lead to changes in how people perceive their risk.
Methodology:
To collect data for this article, we looked up the 20 Largest Publicly Traded Liquor Companies in the US and then picked out the ones with the lowest short percentage. The stocks are sorted in descending order of their short interest, as of December 13, 2024.
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A close-up shot of a cannabis plant, showing its intricate details.
SNDL Inc. (NASDAQ:SNDL)
Short % of Shares Outstanding: 1.77%
Next on our list of the Best Alcohol Stocks According to Short Sellers is SNDL Inc. (NASDAQ:SNDL), the largest private-sector liquor and cannabis retailer in Canada. The company also operates as a licensed cannabis producer and stands as one of Canada’s premier vertically integrated cannabis enterprises.
SNDL Inc. (NASDAQ:SNDL)’s liquor business seems to be struggling primarily due to the ‘softness seen across North America’. In Q3 of 2024, SNDL reported a net revenue of $144.6 million from its liquor segment, a decline of $7.2 million or 4.8% YoY. However, the company continues to believe in the long-term potential of the business, which still managed to deliver growth in operating income and gross margin.
Like many of its peers in the cannabis business, SNDL Inc. (NASDAQ:SNDL) has been focused on sales growth instead of profits, increasing its revenue by over 1400% between 2020 and 2023. However, the company still hasn’t managed to become profitable over the last four years. It seems like the strategy is changing now as the Calgary-based company announced a restructuring plan in July to help slash its annual expenses by C$20 million ($13.9 million) and finally improve its profitability. Another positive development is that SNDL’s free cash flow was finally positive ($9.2 million) in Q3 2024, supported by ongoing operational gains in gross margin and efficient working capital management. The company is on track to deliver positive free cash flow for the 2024 calendar year, meeting or even exceeding its guidance.
SNDL Inc. (NASDAQ:SNDL)’s strong financial position provides it a significant competitive edge over its competitors. The company ended Q3 2024 with a cash balance of $263 million, up from $183 million in the previous quarter, with zero outstanding debt. The company also remains committed to returning value to its shareholders and announced a share repurchase program of around $70.3 million in November.
SNDL Inc. (NASDAQ:SNDL) seems to be attracting attention from institutional investors as well. In the third quarter of 2024, shares of the company were held by 10 hedge funds in the Insider Monkey database with a total stake value of $23.34 million, up 42.5% from the previous quarter.
Overall SNDL ranks 6th on our list of the best alcohol stocks according to short sellers. While we acknowledge the potential for SNDL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SNDL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.