We told our subscribers back in August that GRWG stock was going to keep rising. We said:
The company has momentum and a long runway for growth. It is the market leader when it comes to supplying the cannabis sector with everything required to set up a grow operation. As more states legalize and if federal legalization happens, GrowGeneration stock will be a triple-digit runner. While there will be dips along the way, opportunistic investors should use any dips as an opportunity to increase exposure to a company with enormous potential. It’s not often investors get an opportunity to get in on a Home Depot or Lowe’s in the early stages.
After delivering two blowout quarters in a row, we are even more bullish on GRWG stock. We believe that by the beginning of 2022, GRWG stock will be trading north of $50. In this article, we lay out the bull case for GRWG stock and why we believe that this bull run has legs.
First up, here’s a little background info for anyone not familiar with GRWG stock. GrowGen owns and operates specialty retail hydroponic and organic gardening stores. Currently, GrowGen has 31 stores, which include 5 locations in Colorado, 6 locations in California, 2 locations in Nevada, 1 location in Washington, 6 locations in Michigan, 1 location in Rhode Island, 4 locations in Oklahoma, 1 location in Oregon, 3 locations in Maine, 1 location in Florida, and 1 location in Arizona.
GrowGen also operates an online superstore for cultivators. GrowGen carries and sells thousands of products, including organic nutrients and soils, advanced lighting technology, and state of the art hydroponic equipment to be used indoors and outdoors by commercial and home growers.
The company’s mission is to own and operate GrowGeneration branded stores in all the major states in the US and Canada. Management estimates that roughly 1,000 hydroponic stores are in operation in the US. By 2025, the global hydroponics system market is estimated to reach approximately $16 billion.
Another Blowout Quarter For GRWG Stock
The highlights of Q3 for GRWG stock were record Revenues of $55.0 Million, Adjusted EBITDA of $6.6 Million, and
Pre-Tax Net Income of $5.1 Million. In addition, the company issued guidance as follows:
- 2020 full-year revenue guidance increased to $185–$190 million
- 2020 full-year adjusted EBITDA guidance updated to $19.0 million–$20.0 million
- 2020 full-year GAAP pre-tax net income guidance for 2020 is $9.0 million–$11.0 million
- 2021 full-year revenue guidance updated to $280 million–$300 million
- 2021 full-year adjusted EBITDA guidance for 2021 increased to $34.0 million–$36.0 million
Same-store sales of $33.4M (+73% Y/Y); Commercial sales $13M (+188% Y/Y) and Online sales up 112%. Adj. EBITDA of $6.6M (+230% Y/Y).
“Our steadfast focus on rapid, strategic growth in key markets, both organically and through acquisitions, has resulted in our eleventh consecutive quarter of record revenues and EBITDA,” says co-founder and CEO Darren Lampert.
Gross margin at 26.5% vs. 29.9% a year ago; the decrease is reportedly attributable to a larger percentage of the company’s revenue from its expanding commercial and e-commerce business segments.
GAAP net income of $3.3M or $0.07 per share. The company ended the quarter with $55.3M in cash as of Sept. 30, 2020.
The cannabis sector has momentum after the success of the November elections. On Election Day voters in New Jersey, Arizona, Montana, and South Dakota voted to legalize recreational marijuana. South Dakota and Mississippi voters also approved measures to legalize medical marijuana.
There’s also the prospect of a more pot-friendly White House with President-elect Joe Biden. Vice Presidential Candidate Kamala Harris said at the debate a Biden administration would decriminalize marijuana at a federal level and expunge criminal records of people with marijuana-related offenses.
GRGW stock is the best way to play this expansion as it’s a pick-and-shovel play. GrowGen is the Home Depot for indoor growing.
Back in 1849, fortunes were made selling picks and shovels to gold miners in California. In the 2020s, fortunes will be made selling hydroponic and gardening equipment supplies to cannabis growers in the U.S.
GRWG Stock Roll-Up Strategy
The strategy for GRWG stock is to roll up the entire sector and become the go-to source when it comes to indoor growing. There are about 1,000 hydroponics stores in the U.S. The market is highly fragmented. There are no big brands. There’s zero consistency across markets. And online and omnichannel capabilities are limited.
GRWG stock just acquired The GrowBiz. With five stores across California and Oregon, The GrowBiz is the third-largest chain of hydroponic growing centers in the U.S. GrowGeneration’s purchase will bring its California centers up to 10, Oregon to two, and add annual revenues of nearly $50M.
CEO Darren Lampert: “The GrowBiz acquisition represents our continued investment in purchasing the ‘best of breed’ hydroponic operations in the U.S. and strengthening our management team with seasoned veterans from our industry.”
The deal is expected to close before the end of the year.
Why $50 By 2022
- GrowGen is a pick-and-shovel play for cannabis just like Home Depot, Lowe’s, and Tractor Supply are for contractors and farmers.
- GrowGen has already completed a $48 million raise, so dilution is not a concern.
- Shorts have been piling in, which will further fuel rallies as they are forced to cover.
- GrowGen has only 28 stores with plans to have a total of 51 by next year. The company is looking to double its footprint in just one year. It’s very difficult to find ANY stock with this much potential.
- GrowGen is focused solely on the U.S.
- While it took a while for the breakout to happen, GrowGen has not made bagholders out of its stock like Canopy, Tilray, Aurora Cannabis, and most of the cannabis stocks out there.
- Joe Biden won the White House and all legalization initiatives on the November ballot based. More legalization is coming, sooner than later.
GRGW Stock Bottom Line
We know the value guys and the shorts like Hindenburg will say that our $50 target is nonsense, but the momentum is there. Canopy Growth was $50 not that long ago. I would much rather own GRWG stock than Canopy any day and both are now in the low $20s. The value guys and Hindenberg will keep shorting and that will add fuel to the fire as they are proven wrong. GRWG stock is a growth story in the same way as Zoom or Tesla. Valuation at this point doesn’t matter. All that matters is for GRWG to keep posting quarters as they have. The bears have been warned.
As always, good luck to all (except the shorts)!
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Disclosure: We have no position in NASDAQ:GRWG or any of the securities mentioned. We wrote this article ourselves and it expresses our own opinions. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article. Insider Financial is not an investment advisor and does not provide investment advice. Always do your own research and make your own investment decisions. This article is not a solicitation or recommendation to buy, sell, or hold securities. This article is meant for informational and educational purposes only and does not provide investment advice.