GrowGeneration

GrowGeneration Corp.

Stock: GRWG

Rating: Good

Author: Waleed M. Tariq

Summary

  • GrowGeneration stock lost 83% in a year.
  • The company expects challenges to slow growth in 2022 and 2023.
  • like the stock’s accretive profits, good fundamentals, and building effective prospects makes me bullish on the stock.

Bullish

  1. With its cannabis market predicted to grow rapidly, the hydroponics business and GrowGen will both gain greatly.
  2. I’m bullish on the stock because of the company’s growth strategy in the coming fiscal years.
  3. GrowGeneration’s revenue grew 118.5 percent YoY, from $193.4 million in 2020 to $422.5 million in 2021, with same-store revenue up 24.4 percent. Cost of sales increased by 113.8% YoY, resulting in a 160 basis point increase in gross profit to 28%.

Bearish

  1. In 2022, the business predicts revenues of $445 million, 5% YoY growth rate, and flat EBITDA. 
    This significant reduction from present growth caused sell-off and stock price drop. 
    Weaker-than-expected corporate CapEx sales to consumers due to cannabis market challenges caused the disappointing guidance.

Market Brief

  • Hydroponic plants have 20–25% higher yields and 2–5 times increased productivity than soil-based plants.
  • Hydroponics product demand is expanding due to the legalization of cannabis and hemp and the increase of licensed production facilities in North America. Hydroponics market anticipated to reach $17.9 billion at 11.3% CAGR by 2026.

Global Hydroponics Market Trends

Financial Performance & Position

  • GrowGeneration achieved YoY revenue gain of 118.5 percent , from $193.4 million in 2020 to $422.5 million in 2021, along with a 24.4 percent YoY improvement in same-store revenue.
  • Comparatively, the cost of sales grew by 113.8 percent YoY, ending in a 160 basis point YoY growth in revenue profit to 28 percent .
  • Operating expenses came in at 142.3 percent more than in 2020,

Chart

Valuation

  • The firm ’s relative valuation indicators reflect a year-over-year fall. PE has fallen from 150 to 35, PS from 6 to 1.2, and PB from 9 to 1.

Chart

  • In spite of the substantial fall in these figures, the PE is still approximately 1.7 fold the industry median of 13.56, and the PS is slightly above it. PB is the only indicator where the company outperforms its competitor at 1/2 the industry average. Investors who are risk-averse find these pricing appealing enough to take up the chance and hold stance in the Hydroponics industry. 
  • In contrary, risk-averse investors would still prefer to wait at least the Q2 results released.

Conclusion

  • The falling share price has lowered valuation measures to acceptable levels. 
  • If the company delivers on its quarterly guidance, the stock price may rise in anticipation of the highly anticipated 2023 by the 3rd or 4th quarter of 2022.