GRWG (Nasdaq)

Should you invest in Grow Generation? Recommendation: See Below

GrowGeneration Corp. 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. Should you invest in Grow Generation?

See Our Technical Analysis of Grow Generation

Fundamentals
Profile:
HQ: Denver, CO, USA
Founded: 2008
Facilities: 2 5 Garden Centers
Symbol: GRWG (Nasdaq)

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Focus: Strong
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.

Size: Neutral
Market Cap: US $173.6 mil
Enterprise value: US $165.9 mil
# of employees: 96

Markets: Strong
Primary: USA
Secondary: Canada
Major Subsidiaries: Grand Rapids HYDROPONICS, GrowGeneration California, Seattle’s Hydro Spot, GrowGeneration Michigan, Grow Generation Pueblo Corp

Operations: Strong
Cultivation:
Current production: None
Future production: None

Distribution:
Direct sales: Yes, heavygardens.com
Store networks: Twenty Five specialty retail centers in 8 US states
Supply agreements: GrowGeneration has supply agreements with Hawthorne Gardening, Hydrofarm, DL Wholesale, and Humbolt Wholesale

Integration/Diversification:
Vertically integrated: No
Horizontally diversified: Yes

Financials:  Strong
Outstanding shares (diluted): 41.71 mil
Last Three-Quarters Revenue: $21.8 mil
EPS (diluted): 0.03

Management: Neutral
CEO: Darren Lampert
CFO: Monty Lamirato
COO: Tony Sullivan
GrowGeneration’s senior management has extensive experience in executing specialty retail growth and expansion strategies. Darren Lampert, as CEO and Co-Founder of GrowGeneration, brings more than 25 years of experience in various senior management positions. Tony Sullivan brings more than 20 years of experience in managing large retails chains and designing acquisition strategies.

Branding: Neutral
GrowGeneration is marketing their specialty stores and online store brands through billboards, in-store Merchandising, trade shows, social media, and vehicle wraps. Each subsidiary of GrowGeneration is branded accordingly to represent the specialized services or products they offer. The main e-commerce website is branded as HeavyGardens.

Valuation: Strong
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

Financings: Neutral
On June, 2019, GrowGeneration raised $12.8 million in total by issuing common stock in private placement to institutional investors at a price of $3.10 per share.

Risks: Neutral
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.

Recommendation: Strong
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.

In 2019, GrowGeneration is expanding into new markets and adding 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.

Should you invest in Grow Generation? 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 $4.39 a share, is a good investment opportunity—though as earnings increase with sales and expenses reduced then an opportunity can appear.

See Other Grow Generation News