Why IPW Stock Could Rise Again

It’s tough to find a marijuana stock that isn’t undervalued right now. Despite some positive moves on the legalization and banking front in the U.S., pot stocks continue to get hammered. That means there are a lot of great cannabis stocks trading at bargain levels.

One pot stock that no one seems to be talking about is iPower Inc (NASDAQ:IPW).

Not even a Nasdaq listing has been able to boost iPower stock. As you can see in the chart below, IPW stock has basically been trending lower since it went public in the summer of 2021. As of this writing, shares of iPower Inc are down by:

• 59% over the last six months
• 78% year-to-date
• 82% year-over-year
• 90% since its June 2021 initial public offering (IPO)

Grim is about the only word to describe those numbers. On the plus side, the entire marijuana stock market has been taking a beating, so iPower stock isn’t an outlier.

Chart courtesy of StockCharts.com

Many pot stocks deserve to be kicked to the curb, but IPW stock isn’t one of them. iPower Inc reported record fiscal 2022 financial results and record fiscal 2023 first-quarter results. And the company expects this trend to continue.

iPower Inc Overview

iPower is a leading online retailer of household gardening products. The company owns and operates the e-commerce site "ZenHydro," where it sells an array of hydroponic supplies that enable people to grow various plants, including cannabis. (Source: “Company Overview: October 2022,” iPower Inc, last accessed December 16, 2022.)

The company also sells its 20,000+ products through online partners such as Amazon.com, Inc. (NASDAQ:AMZN), Walmart Inc (NYSE:WMT), and eBay Inc (NASDAQ:EBAY).

The products that iPower Inc offers include nutrients, power-efficient lighting, fans, shelving, ventilation systems, activated carbon filters, growing media, hydroponic water-resistant grow tents, trimming machines, and pumps.

Its in-house products are marketed under the "iPower" and "Simple Deluxe" brands.

iPower Inc’s web site is well known in the U.S., but the company also recently entered Europe and is expanding in Canada. This should accelerate its financial growth and further diversify its customer base.

The company’s target market includes residential gardeners and commercial cultivators. Residential gardeners typically need to replenish their supplies on a daily or weekly basis. Within the commercial cultivator segment, iPower focuses on smaller operators, a growing demographic that has been largely ignored by iPower Inc’s competitors.

In fiscal 2022, ended June 30, the company’s revenue jumped by 47% year-over-year to a record $79.4 million. The company swung to full-year profitability of $1.5 million, or $0.05 per share, from a loss of $800,000, or $0.04 per share, in fiscal 2021. Its gross profit in fiscal 2022 increased by 46% to $33.2 million.

In fiscal 2022, iPower Inc’s in-house brands accounted for about 15% of its stock-keeping units (SKUs) but accounted for about 80% of its total sales.

In the fourth quarter of fiscal 2022, the company’s non-hydroponics business nearly doubled and accounted for approximately half of iPower's fiscal 2022 sales.

Q1 2023 Revenue Up 50%; Gross Profit Up 37%

For the first quarter of fiscal 2023 (ended September 30, 2022), iPower announced that its total revenue increased by 50% year-over-year to $26.0 million. Its gross profit in the quarter increased by 37% year-over-year to $10.0 million. (Source: “iPower Reports Fiscal First Quarter 2023 Results,” iPower Inc, November 14, 2022.)

The company reported a first-quarter net loss of $4.3 million, or $0.14 per share, compared to net income of $900,000, or $0.03 per share, in the same period of fiscal 2022. The earnings decline was largely attributed to a $3.1-million goodwill impairment triggered by a decrease in the company’s market capitalization and higher warehouse and freight expenses.

iPower Inc ended the first quarter of fiscal 2023 with cash and cash equivalents of $4.8 million, compared to $1.8 million at the end of fiscal 2022. The increase was primarily due to lower inventory purchases. The company's total long-term debt at the end of the first quarter of fiscal 2023 was $16.1 million, compared to $14.1 million at the end of fiscal 2022.

Lawrence Tan, iPower Inc's CEO, noted, “Fiscal Q1 was a period of strong growth despite contending with lingering challenges in the supply chain.” (Source: Ibid.)

Tan continued, “We generated 50% year-over-year revenue growth while also increasing our in-house product catalog and diversifying our sales with non-hydroponic products. This shift, coupled with our ability to materially grow sales, demonstrates our superior product research, design and merchandising expertise.”

Kevin Vassily, iPower Inc's CFO, added, “Although certain headwinds in the macro environment persist, we have begun to see improvements in shipping lead times and a reduction in freight costs, which will enable us to lower inventory levels and reduce short-term warehouse expenses. We expect this to benefit our operating margins as well as our cash flow.” (Source: Ibid.)

Vassily continued, “Looking ahead, we plan to continue driving growth in both our hydroponic and non-hydroponic businesses, while maintaining our judicious approach to capital allocation and returning to profitability.”

Analyst Take

As discussed above, iPower Inc is a leading online supplier of hydroponic gardening products to commercial and home cultivators. In addition to running its own web site, it has established relationships with Amazon and other major online retailers.

The company continues to grow its online business, it's eyeing acquisitions in order to scale up its in-house product portfolio, it's expanding globally, and it's developing products outside of traditional hydroponics.

All this has helped iPower Inc report record revenue in fiscal 2022 and maintain its trend in the first quarter of fiscal 2023.

iPower stock has taken a beating, but if the biggest share-price gains come during a bear-market recovery, IPW stock should be one to watch over the coming quarters.