Cannabis Stock Pick for 2020: GrowGeneration
“Picks and shovels” cannabis companies like GrowGeneration Corp. (Nasdaq: GRWG) can be exciting cannabis stock investment opportunities. But is this one of the best cannabis stock picks for 2020?
For starters, the risks of investing in this company may be somewhat lower than many cannabis companies in that they are ancillary to the growing industry and don’t touch cannabis plants.
GrowGeneration retails hydroponic and organic specialty gardening products. The company owns and operates a chain retail hydroponic and gardening stores and an online e-commerce store, HeavyGardens. Its stores sell various products, including organic nutrients and soils, advanced lighting technology, hydroponic and aquaponic equipment, and other products needed to grow indoors and outdoors.
Why do we like GrowGeneration as a top Cannabis pick for 2020?
Strong Focus:
GrowGeneration is one of the largest specialty organic and hydroponic gardening retail chains across the United States. GrowGeneration is focused on expanding to new markets by opening new retail centers, acquiring cannabis cultivation licenses in target states, acquiring new companies, and maintaining positive financial growth. GrowGeneration is aiming to increase its revenue from Cannabis cultivators as currently, 15 percent of its revenue comes from them.
Strong Financials:
- Outstanding shares (diluted): 41.71 mil
- Last Three-Quarters Revenue: $21.8 mil
- EPS (diluted): 0.0
Strong Valuation:
- Current share price: US $4.39
- Price to Sales: 2.28
- Price to Book: 3.28
- 52 week low/high: US $2.05 to $5.75
- EV / Revenue: 2.62
Grow Generation is expanding as a top cannabis stock pick?
GrowGeneration is one of the largest specialty organic and hydroponic gardening retail chains across the United States. GrowGeneration is focused on expanding to new markets by opening new retail centers, acquiring cannabis cultivation licenses in target states, acquiring new companies, and maintaining its positive financial growth.
GrowGeneration: Increasing Revenue from Cannabis Cultivators
In 2019, GrowGeneration expanded into new markets and added new product lines with the acquisition of 5 companies worth $25 million in total. GrowGeneration is aiming to increase its revenue from Cannabis cultivators by offering products and consultations as currently, 15 percent of its revenue base comes from them.
In June 2019, GrowGeneration managed to raise $12.8 million in total by issuing common stock in private placement to institutional investors at a price of $3.10 per share. In December 2019, GrowGeneration will be listed on the NASDAQ exchange.
Cannabis Stock Pick: GrowGeneration
Should you invest in GrowGeneration? Will its stock price improve in the long term? Likely
GrowGeneration has cash and cash equivalents worth $18 million, which is enough to provide support for its operations and expansion for the next 10 to 12 months. Given their aggressive strategy of expansion by acquisition, GrowGeneration will eventually need additional financing to acquire new companies beyond 2020.
GrowGeneration’s net profit decreased slightly to $1.05 million in the third quarter of 2019 as compared to $1.06 million in the second quarter. However, they reported a net profit margin of 4.82% which ranks them among the top 5 in the home improvement retail industry and 28th in the retail industry in the US.
GrowGeneration’s cash to debt ratio in the third quarter of 2019 was 1.93 which shows that if needed they can manage debt payments for the quarter. Their current ratio of 4.2 during the last quarter of 2019 is the highest in the retail sector.
For these reasons, we think GrowGeneration, at or near its current price of $5.43 a share, GrowGeneration is a good Cannabis stock investment opportunity for 2020—though as earnings increase with sales and expenses reduce then there may be additional opportunities in the future.
See our full comprehensive analysis of GrowGeneration here.
Cannabis Stock Pick for 2020: GrowGeneration
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