Let’s not kid ourselves. When we’re taking about the hydroponics market, we’re really talking about growing marijuana. If you’re okay with that, then GrowGeneration (NASDAQ:GRWG) might be right up your alley. And if can envision a bright future for the hydroponics niche, then GrowGeneration stock is a pure play that’s worth considering.
You would be hard-pressed to find a more direct entry point into this specialty market. GrowGeneration bills itself as “the largest chain of specialty hydroponic and organic garden centers.”
The company very recently expanded and now has 28 locations. GrowGeneration’s most recent acquisition is particularly encouraging as it’s in a prime location for retail hydroponics equipment sales.
Moreover, GrowGeneration’s most recent quarterly fiscal report was literally one for the record books.
If you’re interested in an indirect but nonetheless worthwhile investment in the cannabis market, GrowGeneration absolutely deserves your attention.
A Closer Look at GrowGeneration Stock
Every coin has two sides, and I can’t say that I like everything about GrowGeneration stock. The worst thing about the stock, as I see it, is its trailing 12-month price-to-earnings ratio of 526.92.
Admittedly, that’s quite high. Hopefully, after we explore the company’s second-quarter fiscal data, you’ll be willing to forgive GrowGeneration stock’s lofty valuation.
Prior to the share-price spike that occurred this summer, GrowGeneration stock traded in a range between $2 and $7. At the end of August, however, the share price was above $14.
It’s up to you to decide whether GrowGeneration stock is still a good value at the current share price. If the company can continue to expand and generate robust revenues, then the stock might be worth your investment capital.
A Bigger Footprint
On Aug. 11, GrowGeneration announced that the company had acquired its 28th location. It was GrowGeneration’s third acquisition in 2020 and a worthy addition to the company’s already impressive collection of hydroponic garden centers.
This location is known as Emerald City Garden, located in Concord, California. As GrowGeneration reports, Concord is located in what the company calls the “green zone.”
It is “green,” and this descriptor could be applied to California as a whole. GrowGeneration points out, “By 2022, the legal adult-use cannabis market in California is projected to jump to $5 billion – boosted significantly by California’s recreational cannabis market.”
Furthermore, Emerald City Garden, “is one of the largest hydroponic operations in the region” and its sales for 2020 are expected to total roughly $4 million.
Deep in the Green
The announcement of the Emerald City Garden acquisition certainly didn’t hurt the GrowGeneration stock price. Two days later, the company released its second-quarter fiscal data, which was truly outstanding.
Without further ado, let’s go over the highlights of a quarter that won’t soon be forgotten:
- Revenues of $43.5 million, a quarterly record for GrowGeneration
- 10th consecutive quarter of record revenues
- Approximately $2.6 million in GAAP net income, another quarterly record for the company and a major improvement over the net income of $1.1 million reported during the same quarter of 2019
- Adjusted EBITDA of $4.6 million
- $25.1 million in same-store sales, a 49% improvement over the $16.9 million recorded during 2019’s second quarter
- 2020 revenue guidance increased to the range of $170 million to $175 million
- Guidance for 2020 adjusted EBITDA increased to a range of $17 million to $18 million
I could actually keep going, but I’m sure you get the idea by now. And bear in mind that this all took place during a global pandemic. If these numbers don’t convince you, then you’re an awfully tough customer.
The Bottom Line
Investing in the hydroponics niche isn’t necessarily for everyone. Still, the expansion rate and the fiscal data undoubtedly support a long position in GrowGeneration stock. If you’re on board with that, then your trading account might see some green very soon.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.