Grow Generation (GRWG) sells hydroponic grow supplies for indoor growing. It is a cannabis support company whose products and services are essential to the industry. The company operates through retail outlets and e-commerce sites, where it sells consumable and non-consumable hydroponic grow supplies. The company’s stock closed at $30.01 on Wednesday. (See GRWG stock charts on TipRanks)
The business is expanding through new store acquisitions and the leasing /building of new distribution centers. It recently reported record revenues for Q2-2021 and raised its future revenue predictions. The company operates with net income and its stock has been on a recent uptrend, with increasing momentum. I am bullish on the company and recommend a long-hold strategy.
Grow Generation Reports Record Revenues for Q2-2021
Grow Generation reported Q2-2021 revenues of $125.9M, which is an increase of 190% from the prior year of $43.5M. E-commerce sales made up $12M of the revenue compared to $3.3M from prior year. The remaining revenue was from retail sales. The company has increased its Q3 and Q4 revenue expectations to $120 – $125M per quarter.
The company showed a gross profit of $35.7M, a 200% increase from previous year, and net income of $6.7M, showing an increase of 161% from prior year. It reported cash and short-term securities of $124.5M. The company’s total assets of $452.8M outweigh its total liabilities of $89M.
Revenue Synergies Looking Forward
Grow Generation operates in 69 retail locations across 12 states, through distribution and fulfillment centers, and through e-commerce sites. The company sells standard hydroponic equipment and offers its own private label brands. It works with commercial and retail growers.
The company sells consumable and non-consumable grow supplies. Consumable supplies include grow mediums and fertilizer, while non-consumable supplies include lights and watering systems. The customers of Grow Generation constantly come back to restock on consumable items as well as non-consumable, thus future revenue growth is almost certain.
The company’s revenue steam may be attributed to its business strategy of rapid expansion via acquisition of new retail outlets. Since reporting its Q2-2021 results, the company has already made new acquisitions in Washington (1 store) and southern California (10 stores). The company now boasts 69 retail outlets across 12 states, and plans to continue its strategy of retail outlet acquisition across the United States.
In preparation for its future growth, the company has leased new distribution and fulfillment centers in Los Angeles and Rancho Dominguez, California. Furthermore, it is in the process of building additional centers in Phoenix, Arizona and Medley, Florida. GrowGeneration forecasts an increase in demand of hydroponics supplies, with the passage of medical and recreational cannabis reforms in various states.
Stock Momentum
The company’s stock has been up 120% over the last twelve months, although it has undergone a severe downtrend since July, dropping from $52.50 per share to below $30 per share. The stock is currently up trending and headed toward higher price channels. It is a daily mover with high trading momentum. It has 52% large institutional ownership and is favored equally by retail traders. The stock’s current price target between $50 and $60 per share is reasonable for its valuation and future growth.
Wall Street’s Take
According to Wall Street, Grow Generation has a Strong Buy consensus rating, based on five Buy ratings assigned in the past three months. At $56.60, the average Grow Generation price target implies 88% upside potential.
Conclusion
Grow Generation is an essential cannabis support stock, which sells hydroponic indoor grow supplies. The company recently reported record quarterly revenues and expects the increase of revenues to continue. Its business strategy of U.S.-wide expansion via retail outlet acquisitions plays a large factor in its revenue growth.
Although trading in a lower price channel, the company’s stock sees high trading momentum. I have a bullish rating on the stock.
Disclosure: At the time of publication, Alan Sumler did not have a position in any of the securities mentioned in this article.
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