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Hydrofarm Holdings is a distributor of controlled environment agriculture equipment and supplies. This cannabis ancillary stock has recently been turning analysts’ heads. But why is Hydrofarm Holdings a strong buy?

The company sells grow lighting; atmospheric controls; hydroponics; nutrients and additives; growing media; plant care and pest and disease control; seed starting and cloning; garden accessories; and food storage products.

Much like the blue jeans that Levi Strauss sold to gold miners, Hydrofarm is taking the “picks and shovels” approach to capitalize on the cannabis boom.

Let’s take a closer look at Hydrofarms Holdings to see why this cannabis stock is a strong buy.

Hydrofarm Holdings Fundamental Analysis

Profile

HQ: Fairless Hills, PA, USA
Founded: 1977
Symbol: HYFM (Nasdaq)

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Focus: Strong

Hydrofarm is a distributor of all the items necessary to grow plants, including cannabis and hemp. They have over 40 years of experience in doing this. They are based out of Pennsylvania, USA. Much of their business is wholesale and they carry over 5,000 items.

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Size: Strong

Market Cap: US $2.12 billion
Enterprise Value: $2.08 billion
# of employees: 209

Markets: Neutral

Primary: USA
Secondary: Canada
Majority Subsidiaries: Field 16 LLC; SunBlaster Holdings; Allied Imports; Aurora Innovations; Humboldt Wholesale; EHH Holdings; Hydrofarm Investment; House & Garden; Gotham Properties; Hydrofarm Canada

HYFM Technical Analysis: Follow Stephen Goldman as he evaluates Hydrofarm Holdings using the Golden Cross Indicator, the Aroon Up/Down, and the MACD.

Operations: Neutral

Cultivation: None

Distribution: They specialize in the distribution and wholesale of over 5,000 products. They have six distribution centers in the USA and two in Canada although their brands are in hundreds of retail locations.

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

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Financials: Strong

Revenue (ttm): $386.7 million
Outstanding shares (diluted): 43.93 million

Management: Strong

CEO: William Douglas Toler
President: Terence Anthony Fitch
CFO: John Lindeman
CAO: Joseph Rumley
Secretary: Jeffrey Peterson

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Branding: Strong

They have huge brands like House & Garden, Roots Organic, Oxyclone, Quantum, ActiveAir, Phantom and many more. They also carry many other brands in their stores such as FoxFarm, EarthJuice, Elite, Grotek, Remo, Gree etc.

Valuation: Strong

Current share price: US $49.98
52 week high/low: $41.59-95.48
Price to Sales: 3.23
EV/Revenue: 5.38
Price/book: 10.01

Financing: Neutral

They have over $60 million in cash with less than $20 million of debts. Their operating cash flow is -$45.7 million though.

Risks of Buying HYFM Stock: Medium

The risks of investing in any cannabis company are very high given the immaturity of the market and all competitors. This company has fewer risks in that they have no extra regulations that cannabis companies have, they have high revenue, and strong leadership.

Related: 4 Top Ancillary Cannabis & Hemp Stocks for 2020

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Bottom Line: Why is Hydrofarm Holdings a Strong Buy?

Hydrofarm Holdings sells high volumes of nutrients, hydroponics, cultivation equipment and grow equipment. They have a strong wholesale business.

They’ve recently done some acquisitions (Heavy 16, and House & Garden) to raise the already strong brand offerings that they carry at their retail and distribution stores. Currently they have over 5,000 items in stock.

Their CEO, William Douglas Toler, comes from Hostess Brands where he turned them around to profitability. He guided them to over 50% gains in their stock price.

This company only went public at the end of 2020. Since then their price jumped to the mid 90s and then dropped to where it is now, just under $50 per share. There could be some value at this price.

They have around $309 million from selling an additional 5.5 million shares at $59 in May 2021 and should use this to continue their string of acquisitions. They have strong revenue growth QoQ and strong estimates of revenue growth for the next two years. For all these reasons we believe Hydrofarm Holdings is a strong buy.

Why is Hydrofarm Holdings a Strong Buy?


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