GrowGeneration Corp (OTCMKTS: GRWG) is surging after reporting record revenues and net income for the first three months of the year. Impressive financial results are the latest catalyst fuelling upside action on the stock coming under pressure after an excellent start to the year.
GRWG Price Analysis
The stock is threatening to break out after trading sideways in a tight trading range of between $2.60 and $3.50 in recent months. Stellar financial results for Q1 came barely weeks after the company delivered record revenues for Fiscal 2018.
Plans to list in a major exchange before the end of the year, as well as the issuance of an outlook that underscores underlying growth, also continue to strengthen the stock’s sentiments in the market. After bottoming out following a steep pullback, GrowGeneration is staring at the $3.50 mark as the resistance level standing in the way of further upside action.
A rally-followed by a close above the $3.5 level should reaffirm the stock’s break out credentials paving the way for it to make a run for the $4.90 resistance level. Conversely, failure to take out the $3.50 level could result in the stock trading sideways as has been the case for the better part of the year.
In our view, GrowGeneration is likely to continue edging higher given a string of impressive earnings report that continues to prop investor sentiments in the stock.
What Does GrowGeneration Corp Do?
GrowGeneration operates retail hydroponic stores through its subsidiaries. The company also offers farming soil hydroponic equipment lighting and other products thus serving as a home for growers of organic vegetables and fruits.
Sales Growth Milestone
GrowGeneration Corp is a potential break out play in response to earning reports that continue to prop investor sentiments about the company’s long-term prospects. Revenues for the quarter ended March 31, 2019, came in at $13.1 million up 199%, from $8.7 million reported a year earlier. Same-store sales in the quarter were up 42%.
In addition to record Q1 revenues, the company also generated a net income of $229,421 compared to a net loss of -$953,430 reported a year earlier. Gross profit margin increased to 28.2% compared to 27.1% reported a year earlier.
According to the Chief Executive Officer, Darren Lampert, first quarter financial results were transformational thanks to improved financial performance in all sectors.
“With Q2 being our traditional strongest quarter, revenue and net income are trending significantly higher than our Q1 numbers. The newly acquired stores and our new store openings are all performing better than expected. We have a strong pipeline of new acquisition targets set to close in Q2,” said Mr. Lampert.
Buoyed by Q1 performance, GrowGeneration Corp expects 2019 revenue to come in at between $60 million and $65 million. For the full year ended December 2018, Grow Green generated revenues of $29 million representing a 107% increase from 2017 levels.
EBITDA, on the other hand, should range between $0.14 and $0.18 a share. The management remains focused on eight markets for growth having also unveiled a new e-commerce site for selling the company’s products.
In addition, GrowGeneration is eyeing new store acquisitions as a way of expanding the current retail footprint. Plans are also underway to unveil new proprietary products while pursuing Amazon sales as well.
While 2018 represented a fifth consecutive year of record growth with revenues growing 100% year over year, 2019 could be even better if the performance in the first quarter is anything to go by. The company is already available in eight states with 21 locations and still growing.
The acquisition of three additional stores and opening of two new stores could help the company generate an additional $14 million in revenue in 2019
The acquisition of Heavygardens.com has also left the company in a position to accelerated e-commerce efforts in a bid to generate more sales.
“Our acquisition of HeavyGardens.com is the foundation of our e-commerce strategy and our Omni-channel shopping experience, connecting all of our customers to our platform. Our purchase of product trademarks, from the third largest hydroponic distributor, bolsters our ability to supply branded “house” products to our customers,” stated Mr. Lampert.
GrowGeneration Corp is on the brink of breaking out as record revenue and net income continue to attract investors into the stock. With the stock trading at a discount relative to its long term prospects, further gains could be in the offing given there is a lot of ground to cover on the upside.
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Disclosure: We have no position in GRWG and have not been compensated for this article.