GrowGeneration Corp: Pot Stock Reports Record Q1 & Raises Guidance

GrowGeneration Stock Up 615% Year-Over-Year

GrowGeneration Corp (NASDAQ:GRWG) could be the perfect pot stock for people who don’t want to invest directly in cannabis.

Many investors have been overlooking GrowGeneration’s spectacular long-term growth potential, probably because it’s a pick-and-shovel stock. The company supplies hydroponic tools to cannabis growers of every size, from backyard enthusiasts to multistate operators.

It might not sound as exciting as growing pot, developing cannabis products, or running dispensaries, but it’s the backbone of the industry.

The company recently reported record first-quarter results, with its same-store sales up 51%. So far this year, GrowGeneration Corp has closed nine acquisition deals and added 15 hydroponic retail locations, bringing the company’s total store count to 53.

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And that’s just the beginning. While marijuana is still illegal in the U.S. at the federal level, the legalization of recreational cannabis is an eventuality. And GrowGeneration will be there to help with the green wave. It already has a massive head start.

As you can see in the following chart, ignoring GrowGeneration stock would be a massive mistake. It might just be a pick-and-shovel stock, but it has been trouncing the stocks of the country’s largest multistate marijuana operators.

Chart courtesy of StockCharts.com

GRWG stock has been on a great run since the broader stock market bottomed in March 2020. Since then, GrowGeneration stock has soared by 1,420%. GRWG stock is also up 620% year-over-year and 39% over the last six months.

In 2021, GrowGeneration stock is actually down by 0.4% and needs to climb by roughly 70% to get back to its February high of $67.75. Wall Street sees that happening over the next year.

Of the eight analysts providing a 12-month share-price forecast for GrowGeneration Corp, the median estimate is $57.50, which represents growth of 43.7% from the current price. The high estimate is $77.00, which translates to potential upside of 92.5% from the current level.

Chart courtesy of StockCharts.com

GRWG Stock Overview

GrowGeneration operates the largest chain of garden centers in the U.S., with 53 locations in 12 states. It also operates an online gardening and hydroponics superstore. (Source: “Investor Presentation,” GrowGeneration Corp, April 1, 2021.)

The company carries and sells thousands of products, including organic nutrients and soils, advanced lighting technology, and state-of-the-art hydroponic equipment. It also sells its own branded products, which it expects to be responsible for 10% of its total revenue in 2021.

The company’s supply chain currently covers 900,000 square feet of retail and warehouse space, spanning 13 states.

GrowGeneration Corp has been busy expanding its operations. The company expects the number of its garden centers to grow to 60 in 2021 and to 100 by 2023.

The company says its goal is to own and operate GrowGeneration-branded stores in all major states in the U.S. and Canada. That strategy has been one of its biggest drivers of growth.

In addition to opening its own stores, GrowGeneration Corp has an aggressive acquisition strategy. In 2020 alone, the company announced more than 10 strategic acquisitions that added $100.0 million in revenue.

It has the same growth targets for 2021. In the first quarter of 2021, GrowGeneration acquired:

  • Indoor Garden & Lighting, a two-store chain serving the Seattle and Tacoma, WA area
  • Grow Depot, a two-store chain in Auburn and Augusta, ME
  • Grow Warehouse, a four-store chain in Colorado and Oklahoma
  • San Diego Hydroponics & Organics, a four-store chain in San Diego, CA
  • 55 Hydroponics, which is in Santa Ana, CA
  • Aquarius Hydroponics, which is in Springfield, MA
  • Agron LLC, an e-commerce company that serves commercial growers

On March 9, GrowGeneration announced the addition of 52,000 square feet in downtown Los Angeles and 70,000 square feet in Rancho Dominguez, CA.

The company is in the process of building several fulfillment centers, including 25,000 square feet in Phoenix, AZ and 58,000 square feet in Medley, FL. These locations are expected to be open by this summer.

In April, GrowGeneration Corp acquired Downriver Hydroponics, a garden center in Wayne County, MI.

Also in April, the company entered a lease for a 40,000-square-foot facility in Jackson, MS. Mississippi is the 13th state in which GrowGeneration operates.

In May, GrowGeneration announced the building of its sixth Oklahoma location, in Ardmore.

Exceptionally Strong Start to 2021

For the first quarter of 2021, GrowGeneration reported record revenue of $90.0 million, a 173% increase over the $33.0 million in the same prior-year period. (Source: “GrowGeneration Reports Record First Quarter 2021 Financial Results and Raises Full-Year 2021 Guidance,” GrowGeneration Corp, May 12, 2021.)

The company’s comparable same-store sales for the quarter increased 51%. Its e-commerce revenue was $4.4 million, a 126% increase over the $1.9 million recorded for the first quarter of 2020.

GrowGeneration Corp also reported record first-quarter 2021 net income of $6.1 million, or $0.10 per share, versus a first-quarter 2020 net loss of $2.0 million, or a $0.06 loss per share.

The company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $11.1 million, compared to $2.4 million in the same period of the previous year.

Looking forward, Darren Lampert, GrowGeneration Corp’s co-founder and CEO, said the following:

Based upon our strong performance, we are now raising the financial outlook for the year and expect 2021 revenues to be between $450 million and $470 million, more than double the company’s sales in 2020. Further, at these projected sales, adjusted EBITDA guidance for 2021 is now $54 million to $58 million.

(Source: Ibid.)

Analyst Take

GrowGeneration Corp continues to be one of the most impressive plays in the cannabis space. It has been opening new stores, making acquisitions, and reporting record financial results. The company also raised its full-year guidance.

The year 2020 was an amazing one for GrowGeneration stock, and it looks like 2021 and beyond will also be monumental.