GrowGeneration Corp: Specialty Cannabis Play up 88% Could More Than Double in Back Half of 2019

GrowGeneration Corp. Specialty Cannabis Play up 88% Could More Than Double in Back Half of 2019
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GRWG Stock Has Transformational Year

Up 88% year-to-date, GrowGeneration Corp (OTCMKTS:GRWG) is in the midst of a transition year, one that could see its share price more than double in the second half of 2019.

The Denver, Colorado-based company reported record financial results for the third quarter of last year and record full-year results. That momentum carried into 2019, with record first-quarter results with improved financial performances across the board, including profitability.

GrowGeneration Corp, which will be announcing its second-quarter results in early August, expects its record-winning ways to continue. The second quarter is traditionally its strongest quarter of the fiscal year.

Those winning ways have not gone unnoticed, with the company being funded by Gotham Green Partners, Navy Capital, LLC, JW Asset Management, LLC, and Meridian Capital Partners, LLC. GrowGeneration has raised an additional $12.8 million in funding this year, which will help drive its aggressive acquisition strategy and open new stores.

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Soon, more than hedge funds and astute investors will know about GrowGeneration; the company has applied to uplist to the Nasdaq.

Currently trading at $4.20 per share, GrowGeneration stock will not be a penny stock forever. In fact, that could all change in 2019.

GrowGeneration Corp Overview

GrowGeneration owns and operates retail hydroponic and organic gardening stores that sell thousands of products used by commercial and home growers for indoor and outdoor cultivation. It also operates the online superstore HeavyGardens.com. (Source: “About,” GrowGeneration Corp, last accessed July 19, 2019.)

While GrowGeneration sells its hydroponic products to everyone, roughly 15% of the company’s business comes from big, multi-state cannabis operations.

The retail hydroponics market is lucrative and highly fragmented. By next year, the market is projected to be worth more than $23.0 billion, with a compound annual growth rate of 32%.

The company’s current retail footprint includes 24 locations in nine states: California, Colorado, Maine, Michigan, Nevada, New Hampshire, Oklahoma, Rhode Island, and Washington.

In addition to opening new retail locations, GrowGeneration is also snapping up other brands. To date, GRWG has announced more than 10 acquisitions, five of which came in 2019.

In May, the company acquired the assets of GreenLife Garden Supply, meaning the company now has five retail and warehouse locations serving the New England market. (Source: “GrowGeneration Purchases GreenLife Garden Supply,” Cision PR Newswire, May 14, 2019.)

The acquisition positions GrowGeneration to serve adjoining New York and New Jersey, two states that are moving toward legalizing recreational marijuana.

In October 2018, the company formed GrowGeneration Canada with the aim of acquiring retail and wholesale equipment and grow supply companies in the “Great White North.” It will initially operate in Ontario and British Columbia, with plans to finance itself independently of GrowGeneration USA.

GRWG Stock Information

Market Cap $120.3 Million
52-Week Change 2.6%
52-Week High $5.10
52-Week Low $2.04
Shares Outstanding: 28.8 Million
Float 21.4 Million
50-Day Moving Average: $3.22
200-Day Moving Average: $3.05

(Source: “GrowGeneration Corp. (GRWG),” Yahoo! Finance, last accessed May 8, 2019.)

GrowGeneration stock hasn’t been on the smoothest growth trajectory in 2019. That said, it came through for investors when the rest of the cannabis industry didn’t. May 2019 was the worst May for stocks since 2010, with many of the biggest cannabis players ending the month deep in the red. The S&P 500 tumbled 6.7% in May; GRWG stock, however advanced 14.3%.

This upward move was fueled in part by the company’s report of record first-quarter results and ongoing investor optimism.

In July, GrowGeneration stock continued to climb higher, hitting a 2019 intra-day high of $4.20 on July 19 for a year-to-date gain of 88.3%.

Why the sudden increase?

There was no real recent news from the company. On July 10, it did announce that it hired Bob Nardelli, former CEO of Home Depot Inc (NYSE:HD) as a strategic advisor. While Nardelli helped grow Home Depot into a $90.0-billion business, GrowGeneration’s announcement was probably not responsible for its share price popping in mid-May.

Instead, investor optimism was likely initiated after a glowing article about the company was published on July 14. And you can never underestimate investor optimism, especially when it’s well placed.

For technical traders, GRWG stock formed a golden cross pattern on July 12, a bullish indicator in which the 50-day moving average crosses the 200-day moving average. Chances are good that GrowGeneration shares will give up some short-term ground.

Chart courtesy of StockCharts.com

How investors react to the expected record second-quarter results in early August remains to be seen. If history is any indicator, it should be good for GRWG bulls.

GrowGeneration Reports Transformational Quarter

On April 1, GrowGeneration Corp reported another quarter of record revenue and net income. Revenue for the first quarter ended March 31 jumped 199% year-over-year to $13.1 million, with same-store sales up 42%. (Source: “GrowGeneration Reports Record Q1 2019 Revenues and Net Income,” Cision PR Newswire, April 1, 2019.)

Net income came in at $229,421, versus a loss of $953,430 in the first quarter of 2018. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $615,509, compared to an adjusted EBITDA loss of $366,945 in the same period last year.

GrowGeneration ended the first quarter with cash and cash equivalents of $6.6 million. Not a ton of cash, but the company did announce on June 26 that it closed on a $12.8-million private placement.

Analyst Take

GrowGeneration Corp continues to be an excellent cannabis stock with fabulous short and long-term growth potential. The largest business-to-business seller of specialty hydroponic suppliers, the company continues to expand its footprint both organically and through strategic acquisitions.

All of which has been helping the company achieve stellar financial results. GrowGeneration is currently reporting 100% year-over-year growth which, thanks to recent acquisitions, will help it maintain its eye-watering revenue levels.

The acquisition deals that GrowGeneration expects to close in the third and fourth quarter are expected to propel the company’s revenues to over $100.0 million in 2020. Pretty amazing for a penny stock that currently has a market cap of just $117.7 million.