There are plenty of cannabis-related stocks to choose from. However, GrowGeneration (NASDAQ:GRWG) occupies a specific niche as the company is “the largest chain of specialty hydroponic and organic garden centers with 31 locations across 11 states.” So, if you’re prepared to invest in the hydroponics space, you might consider GrowGeneration stock.
When I recommended a long position in GrowGeneration stock back in mid-September, I honestly had no idea who would be the U.S. president in 2021. Nor did I know whether any states would pass pro-cannabis legislation in November.
All I knew was that GrowGeneration is an ambitious and financially sound company in a potentially hyper-growth market. I was concerned about the stock’s high price-to-earnings ratio, however.
We’ll address this concern today, along with the changing political landscape that will undoubtedly shape the cannabis industry in general, and GrowGeneration stock’s trajectory in particular.
A Closer Look at GrowGeneration Stock
When I highlighted GrowGeneration stock a couple of months ago, I admitted, “The worst thing about the stock, as I see it, is its trailing 12-month price-to-earnings ratio of 526.92.”
As I check back on GrowGeneration stock now, I observe that it currently has a trailing 12-month price-to-earnings ratio of 335.79. That’s still awfully high, but at least it’s moving in the right direction.
The company would need to have awesome financials in order to justify such a lofty P/E ratio. We’ll certainly address this today. It’s also worth noting that at $25.52 on Nov. 13, GrowGeneration stock is trading close to its 52-week high.
Therefore, GrowGeneration stock isn’t necessarily a bargain if we evaluate it by traditional metrics. It will be a tall order to justify taking a long position in a stock that seems so pricey. But in the world of cannabis stocks, I believe that anything is possible.
A Growth-Ready Environment
In the middle of November, it appears that Joseph Biden and Kamala Harris will be the president and vice president of the United States in 2021.
This has profound implications for companies in cannabis and related markets. Harris has said outright, “Under a Biden-Harris administration, we will decriminalize the use of marijuana and automatically expunge all marijuana-use convictions and end incarceration for drug use alone.”
Whether Harris can make good on this promise remains to be seen. Bear in mind that the U.S. Congress remains divided between Democrats and Republicans.
On the other hand, we don’t have to focus on federal-level reform. That’s because five U.S. states (Arizona, Mississippi, Montana, New Jersey and South Dakota) recently voted in favor of some form of cannabis legalization. As a result, the nation currently has 15 states which have approved cannabis for adult use.
Ready, Set, Grow
In this increasingly pro-cannabis environment, it’s a great time to operate retail hydroponic equipment stores. GrowGeneration’s management estimates that by the year 2025, the global hydroponics system market will reach approximately $16 billion.
So, is GrowGeneration growing along with the hydroponics market? Multiple developments in 2020 indicate that the answer is a resounding “yes”:
- August 10: GrowGeneration purchases the assets of California’s Emerald City Garden
- October 12: The Company acquires the assets of Arizona’s Hydroponics Depot
- October 20: GrowGeneration purchases the assets of Michigan two-store chain The Big Green Tomato
- October 29: The Company signs an asset purchase agreement to acquire The GrowBiz, the third-largest chain of hydroponic garden centers in the U.S.
With an expansion trajectory of this magnitude, GrowGeneration is poised to utterly dominate the American specialty hydroponics market in 2021.
The Bottom Line
It’s not necessarily to rely on political developments to believe in the growth potential of GrowGeneration stock.
The company’s expansion rate speaks for itself. Clearly, GrowGeneration is increasing its footprint in a market that’s only going to bet bigger and better.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.