The shares of GrowGeneration Corp. (GRWG) moved down after the company released its second-quarter results. The stock price lost almost 12% to close at $31.49 on August 13.
GrowGeneration offers thousands of horticultural, organics, lighting, and hydroponics products. As of March 16, 2021, it operated a chain of 51 outlets, as one of the largest hydroponics providers in the United States.
With a market capitalization of $1.88 billion, GrowGeneration lost almost 26% in the past five days and 19% over the last three months.
However, the stock gained 95% and 693% over the last year and three years, respectively. (See GrowGeneration Dividend Date and History on TipRanks)
It’s worth noting that, while the stock price has recently gone down, this decrease could be only temporary.
The rationale for this is that the company’s key financial indicators appear to look decent.
Let’s have a look at these points.
Strong Q2 Earnings Picture for GrowGeneration
On August 12, the company reported impressive second-quarter numbers. The results were driven by record sales, driven by contributions from acquisitions, and strength across its product portfolio.
The company posted adjusted earnings of $0.24 per share in Q2, beating Street expectations of $0.12.
Revenues grew 190% year-over-year to $125.9 million, exceeding analyst projections of $111.69 million.
In Q2, comparable store sales increased by 60% year over year to $62.1 million. Furthermore, adjusted EBITDA increased by 229.5% to $14.5 million.
Encouraging Q3 Guidance
Furthermore, the company provided strong revenue projections for fiscal 2021.
For fiscal 2021, the company raised its revenue outlook to $455-475 million. Also, the guidance stands to be better than the consensus estimate of $459 million.
Future Prospects Remain Bright
Despite the recent drop in the share price, there are a number of reasons for investors to believe that GrowGeneration will reap long-term rewards.
To begin with, the company continues to benefit from the tremendous demand for hydroponics that is fueled by the fast-growing marijuana market.
Markedly, hydroponics has long been a cornerstone in cannabis growing, and as more states throughout the U.S. legalize the drug, the company’s hydroponics supplies are expected to be in high demand.
Secondly, the fact that GrowGeneration has gone from a loss to a profit is fantastic. The company generated GAAP net income of $7.7 million in the first quarter, reported in May, compared to a loss of $2.1 million in the year-ago quarter.
Thirdly, the company has been attempting to expand its operations through acquisitions. This should help the company to generate additional revenues, going forward.
During the second-quarter earnings call, GrowGeneration CEO Darren Lampert said, “For the year, we closed 12 acquisitions, adding 20 hydroponic retail locations, bringing our total store count to 58. The strategies implemented several quarters ago are now positively impacting margins.”
Considering the above points, the company could come out to be a winner in the future.
Analysts’ Views on GrowGeneration
Following the Q2 results, Stifel Nicolaus analyst W. Andrew Carter reiterated a Buy rating on the stock, but decreased the price target to $50.00 from $67.00. This implies 58.8% upside potential to current levels.
Though the two-star analyst believes that the company is well-positioned to capitalize on the growing cannabis industry, he believes the management’s revenue outlook adds to the uncertainty. Although guidance was raised, Carter is concerned that the increase was a mere $5 million, compared to the $25 million increase in management’s prior guidance.
Consensus among analysts is a Strong Buy, based on 5 unanimous Buys. The average GRWG price target of $56.60 implies 79.7% upside potential from the current levels.
GrowGeneration scores a 8 of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
