It has happened many times in 2017; we identify a company with an exciting balance sheet and operating in a promising industry, and the share price spikes up a few months after our article gets published. We don't believe that our report changes anything. In our opinion, the share price increase is due to market participants getting to know the company's financial prospects.
Company Logo from https://growgeneration.com - GrowGeneration Corp OTCMKTS:GRWG
"We believe that the company has an outstanding future if the business keeps showing this type of revenue growth. The management needs to keep looking at the revenue line, but also needs to check the amount of costs and expenses in order to make this company sexy for financial analysts and investors. In any case, this is a stock may explode one day." Source: GrowGeneration Corp (OTCMKTS: GRWG) Continues To Impress
We are happy for the readers who were able to get information due to our article. In the last six months, the share price went from trading at around $2 to hit impressive long-term highs. Check the following stock chart and also note the volume; more than 0.5 million shares. In our opinion, the large number of shares that changed hands shows that the company is finally drawing the attention of the market:
1-month chart for GRWG
For starters, we are revisiting the business model of GRWG. The company was founded in 2014 and is headquartered in Denver, Colorado. It owns and operates specialty retail hydroponic and organic gardening stores. According to the company documentation, it has 14 locations; 9 in Colorado, 2 in California, 1 in Washington, and 2 in Nevada. Thousands of different products are sold to customers including organic nutrients and soils, lighting technology as well as hydroponic equipment for growers.
We believe that the company is very well positioned to profit from the increase in the demand for marijuana in the U.S. GRWG entered the industry early before the legalization commenced, which has provided the company a lot of expertise. Competitors coming into the sector now will have difficulties, as they will have to acquire the know-how that GRWG already owns.
Increasing capacity
The company released a large number of lease contracts and partnership agreements in 2017. The company's expansion is quite astonishing. As we cannot cover every announcement, please read the following list of agreements:
- On April 26, 2017, it was noted that the company had signed a three-year lease, with two three-year renewals, on an 8,000-square foot facility in San Bernardino, California.
- On May 23, 2017, the company announced that it had acquired assets from Seattle Hydro Spot and signed a three-year lease on a 4,000 square foot retail and warehouse facility in Seattle, Wash. Seattle Hydro Spot was a six years old operator making approximately $1 million annually.
- On August 15, 2017, it was noted that the company had signed a 2-year lease in Boulder, Colorado, for its 3rd store in the Denver Metro market.
- On August 29, 2017, a new strategic partnership with LumiGrow Inc. was noted. Under the agreement, the company will be selling LumiGrow 650e commercial LED fixtures with in-store displays that exhibit LumiGrow smart LED technology controlled by its smartPARTM cloud-based software. New contracts usually bring an increase in the number of sales, so we will have to check the future quarterly releases. A surprise could make the share price run.
- On September 25, 2017, it was released that the company had signed a 4-year lease on a 5,000 square foot facility in Las Vegas, Nevada.
New people want to join the company including investment bankers
The market noted that more and more people are interested in joining the company. It was released that Monty R. Lamirato had been appointed as the new CFO. He brought four decades of accounting, audit, and corporate finance experience to the company and was said to be a great asset for GrowGen, which will require scalable accounting and management reporting solutions.
He has worked in other public companies and has served as CFO and Treasurer for ARC Group Worldwide, Inc., and Vice President of Finance for PlanetOutdoors.com, Inc. He has also the experience of Audit Manager and Audit Partner with Mitchell Finley and Company, P.C. We celebrated his profile and expertise. In our opinion, it shows that the company is becoming a serious and mature player in the marijuana industry.
Additionally, GRWG also released that Merida Capital Partners’ Peter Rosenberg had been appointed to the Board of Directors. He brought more than 25 years of experience in merchant and investment banking that we appreciate very much.
Please note the words of this new business executive and remark that the company may acquire other business. It is a very critical feature:
"The Company is well positioned to benefit from the strong trends in the indoor horticulture market, and is expected to grow organically and through consolidation.” Source
Rosenberg has a lot of expertise in Finance, but we would highlight his work for Barrington Associates, a boutique mergers, and acquisitions advisory firm. Additionally, he was Managing Director with Wells Fargo Securities, where he was responsible for sourcing and executing financing and transactions of mergers and acquisitions.
In our opinion, if the company wants to acquire other businesses, the Board will have people with expertise in these aspects.
Financials and Conclusion
From the income statement, it is evident that the revenues keep growing. In the fiscal year 2015, the company reported $3.455 million in revenues, while they were equal to $7.980 million in the following year. Also, the upward trend has continued in the last quarterly reports:
Period EndingSep 30, 2017Jun 30, 2017Mar 31, 2017Dec 31, 2016Total Revenue4,0284,1112,5832,362Cost of Revenue2,9122,9601,9031,828Gross Profit1,1151,150680533
The net income in 2015 and 2016 represents losses of $0.528 and $0.431 million respectively, but we are not worried about it, as the real driver of the share price is the revenue growth.
Regarding the balance sheet, the financial shape is even better. The company reported $0.19 million in cash, $0.5 million in inventory, and total assets of $9.998 million as of September 30, 2017. The liabilities were equal to only $1,749 million.
The excellent performance of the company was identified by the OTC Markets, which announced that the GRWG’s stock could commence trading on the OTCQX® Best Market operated by OTC Market Group. This is great news.
Currently trading with a market cap of $119 million, GRWG is an exciting story among small caps that we encourage readers to follow closely.
We will be updating our subscribers as soon as we know more. For the latest updates on GRWG, sign up below!
Disclosure: We have no position in GRWG and have not been compensated for this article.Image courtesy of Alexander Baxevanis via Flickr
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