GrowGeneration Corp: Overlooked, Undervalued Pot Company Reports Record Q3

Wall Street Says GrowGeneration Stock Could More Than Double

Pot stocks have been taking a hit over the last number of months, mainly because of inactivity on marijuana legalization in Washington, D.C. The Democrats positioned themselves as the pot-friendly party during the 2020 election, but since then, nothing has really happened on that front.

This, coupled with weak financial results from some of the bigger U.S. pot companies, has exhausted investor optimism about marijuana stocks.

On the plus side, this pessimism means several excellent pot stocks are trading at a sharp discount.

One of the best is GrowGeneration Corp (NASDAQ:GRWG). You wouldn’t know it if you just fixated on the company’s share price, though. As of this writing, GRWG stock is:

• Down by 38% over the last three months
• Down by 55% year-to-date
• Down by 40% year-over-year

Chart courtesy of StockCharts.com

Those are pretty grizzly numbers, but there’s every reason to believe that GrowGeneration stock will rebound significantly over the coming quarters.

Wall Street analysts’ average 12-month forecast for GRWG stock is $33.60, with a high estimate of $44.00. This suggests upside of 79% and 141%, respectively.

Why the optimism?

First, GrowGeneration Corp has been reporting record financial results.

Second, there’s growing optimism that the Republicans will introduce a bill to legalize recreational cannabis. The Republican-led States Reform Act might be more likely to pass than the Democrat-led Marijuana Opportunity Reinvestment and Expungement Act (MORE Act).

Whereas the Republican and Democratic bills would both end the criminalization of cannabis, the Republicans’ proposed tax rate is less than the rate proposed by the Democrats. (Source: “A Leak Reveals a Republican-Led Bill to Federally Legalize and Tax Marijuana,” Forbes, November 9, 2021.)

As of yet, the Republican bill hasn’t been introduced in the House of Representatives, but a final version is expected to be filed soon.

There’s every reason to believe that one of the two bills will get passed. The majority of Americans want recreational cannabis legalized, and everyone in Washington wants to get reelected. (Source: “Americans Overwhelmingly Say Marijuana Should Be Legal for Recreational or Medical Use,” Pew Research Center, April 16, 2021.)

On top of that, more and more Americans have been consuming cannabis in recent years. (Source: “Trends in Cannabis Use Among Older Adults in the United States, 2015-2018,” JAMA Network, February 24, 2020.)

This bodes exceptionally well for marijuana stocks such as GrowGeneration stock.

About GRWG Stock

GrowGeneration is the largest provider of hydroponic supplies in the U.S., with 58 retail and distribution centers in 13 states. That number is expected to hit 65 over the coming quarters as the company expands in Michigan. GrowGeneration also operates an online superstore. (Source: “Investor Presentation,” GrowGeneration Corp, August 12, 2021.)

The company sells thousands of products, including nutrients, soils, lighting, and hydroponic equipment used by commercial and home growers.

In addition to selling other companies’ products, GrowGeneration Corp sells its own branded products, which the company expects will account for 10% of its total revenue in full-year 2021.

GrowGeneration has approximately 950,000 square feet of retail and warehouse space in 13 states. 

The company recently opened two locations in Los Angeles County, CA and one location in Medley, FL. (Source: “GrowGeneration Reports Record Third Quarter 2021 Financial Results,” GrowGeneration Corp, November 11, 2021.)

GrowGeneration is scheduled to open a sixth Oklahoma location in the first quarter of 2022. The company is also in the process of building additional fulfillment centers, including a 25,000-square-foot facility in Phoenix, AZ.

GrowGeneration Corp says its goal is to own and operate branded stores in all major states in the U.S., as well as in Canada. In addition to starting up its own stores, it has an aggressive acquisition strategy.

In 2020, a year that will be remembered for COVID-19 and a global recession, the company announced more than 10 strategic acquisitions that added $100.0 million in revenue.

GrowGeneration had the same growth targets for 2021, and it expects to open 15 to 20 locations in 2022.

Another Quarter of Record Results

GrowGeneration stock investors might not be pleased with the direction its share price has taken this year, but they can’t complain about the company’s financial results.

GrowGeneration Corp reported record fourth-quarter and full-year 2020 results. So far in 2021, it has reported record first-quarter, second-quarter, and third-quarter results.

For the third quarter ended September 30, the company announced that its revenues jumped by 111% year-over-year to a record $116.0 million. Its comparable-store sales increased by 15.7% year-over-year. (Source: Ibid.)

GrowGeneration Corp reported third-quarter net income of $4.0 million, or $0.07 per share. That’s a 21% increase over the third-quarter 2020 net income of $3.3 million, or $0.06 per share.

The company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the third quarter were a record $10.8 million, or $0.18 per share, compared to $6.6 million, or $0.13 per share, in the same period last year.

GrowGeneration ended the third quarter of 2021 with cash and short-term securities of $93.0 million.

Analyst Take

GrowGeneration Corp is one of the top pick-and-shovel stocks in the cannabis arena.

Whether someone is growing a few plants at home or they’re a multistate operator with millions of square feet of growing space, they need to buy equipment from someone. Being the biggest provider of hydroponic supplies in the U.S. gives GrowGeneration a big leg up over its smaller, fragmented competitors.

Moreover, the eventual federal U.S. legalization of recreational marijuana should help juice GrowGeneration Corp’s bottom line, which would likely juice the value of GRWG stock.