“Mentorship” Recommendations
- Week Beginning -
Monday, October 26, 2020

by Ian Harvey


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Option Trade – GrowGeneration Corp (NASDAQ: GRWG) Calls

Tuesday, October 27, 2020

** OPTION TRADE: Buy GRWG JAN 15 2021 20.000 CALLS at approximately $2.50. (Max. $3.00)

Place a pre-determined sell at $5.00.

Also include a protective stop loss of $1.00.

GrowGeneration Corp (NASDAQ: GRWG) is a marijuana stock that has everything going for it. It has a strong balance sheet, it has reported record revenue and net income for 10 consecutive quarters, and it continues to announce new acquisitions and expand into new markets.

Even during a pandemic, GrowGeneration stock continues to thrive, advancing 348% year-over-year, up 342% since the start of 2020, and soaring 590% since hitting March lows.

About GrowGeneration …..

GrowGeneration Corp is the biggest hydroponic equipment supplier in the U.S., with 29 locations in 11 states, including California, Colorado, Michigan, Nevada, Washington, and, most recently, Arizona. The company is also actively targeting Illinois, Missouri, New Jersey, New York, and Pennsylvania.

In addition to a growing list of traditional bricks-and-mortar locations, GrowGeneration also operates the online superstore HeavyGardens.com.

The Denver-based company sells its more than 10,000 hydroponics products to individual home growers and large multi-state operators. GrowGeneration also sells its own private-label products, sold under the “Sunleaves” brand.

GRWG is expected to expand its private-label products and sell them through other retailers.

  The company is backed by private-equity from the founders of Cronos Group Inc (NASDAQ:CRON), Gotham Green Partners, Navy Capital, and Merida Capital Partners.

Past Earnings.....

GrowGeneration last announced its quarterly earnings results on Thursday, August 13th.

 The company reported $0.06 earnings per share for the quarter, topping the consensus estimate of $0.04 by $0.02. GrowGeneration had a net margin of 0.86% and a return on equity of 4.44%. The firm had revenue of $43.45 million during the quarter, compared to analysts’ expectations of $36.67 million.

Same-store sales were up 49% at $25.1 million, while store operating costs as a percentage of sales were 9.2% compared to 14% in the second quarter of 2019, a decrease of 34%.

During Q2, GrowGeneration:

  • Added 167 new commercial customers, now serving over 700 commercial accounts
  • Generated over $100,000 per month in sales through its “Sunleaves” private-label nutrient and additives product line
  • Saw an increase in weekly walk-in transactions, up 50% quarter-over-quarter at 10,000
  • Acquired H2O Hydroponics LLC and consolidated it with the company’s West Lansing operations into a new 15,000-sq.-ft. super hydroponic garden center (with the combined business expected to generate over $8.0 million in annual revenue in 2020)

Also during the second quarter, on June 29, GrowGeneration was added to the Russell 3000 Index. The company says this move will increase long-term shareholder value by improving awareness, liquidity, and appeal to institutional investors.

Future Earnings.....

GrowGeneration is expected to announce its next earnings report on Monday, November 9th.

Analysts expect that GrowGeneration will post $47.02 million in sales for the current quarter. GrowGeneration reported sales of $21.78 million during the same quarter last year, which would suggest a positive year over year growth rate of 115.9%.

Also, analysts expect that GrowGeneration will report earnings of $0.06 per share for the current quarter. GrowGeneration also reported earnings per share of $0.06 in the same quarter last year.

GrowGeneration raised its guidance for fiscal 2020 and provided guidance for 2021.

For fiscal 2020, GRWG expects to report:

  • Total revenue in the range of $170.0 million to $175.0 million, for year-over-year growth of between 112% and 118%.
  • An increase in adjusted EBITDA guidance, up to $17.0 million to $18.0 million; this translates into year-over-year growth of approximately 165%.

For fiscal 2021, GrowGeneration expects to report:

  • Total sales of $245.0 million to $260.0 million.
  • Adjusted EBITDA in a range of $26.0 million to $28.0 million.

Influencing Factors.....

On August 10, the company surpassed $100.0 million in year-to-date revenues.

It purchased the assets of Emerald City Garden, located in Concord, California.

On August 12, 2020, GRWG entered into a partnership with Whole Cities Foundation, committing to donate free product to develop urban farms across the U.S.

On October 12, GRWG announced it had entered the Arizona market with the acquisition of Hydroponics Depot, the largest indoor and outdoor garden center in Phoenix.

With this acquisition, GrowGen’s portfolio of hydroponic garden centers now includes 29 stores across 11 states.

GrowGeneration enters the Arizona market at a time when voters are considering Proposition 207.

This law would allow for limited marijuana possession, use, and cultivation for adults 21 years of age or older. It would also amend criminal penalties for marijuana possession, impose a 16% excise tax on cannabis sales to fund public programs, and allow the expungement of marijuana offenses.

Also, GrowGeneration, which has been rather acquisitive lately, is adding another regional asset to its portfolio. The company announced Tuesday that it has purchased Big Green Tomato, a two-store hydroponics supply chain based and operating in Michigan.

With its other Michigan assets, GrowGeneration now has six retail stores in the state. Collectively, says the company, they should produce over $40 million in yearly revenue. GrowGeneration's total store count throughout the country is now 31; Michigan is tied with California for the highest number per state. Ultimately, GrowGeneration aims to operate retail outlets in every state.

Analysts Thoughts.....

GrowGeneration had its price objective boosted by stock analysts at Alliance Global Partners from $17.00 to $22.00 in a report issued last Wednesday. The brokerage currently has a “buy” rating on the stock. Alliance Global Partners’ target price indicates a potential upside of 13.05% from the stock’s current price.

Several analysts have commented on the stock.....

  • Zacks Investment Research downgraded shares of GrowGeneration from a “strong-buy” rating to a “hold” rating in a research report on Wednesday, October 14th.
  • Stifel Nicolaus initiated coverage on shares of GrowGeneration in a research report on Wednesday, August 26th. They set a “buy” rating and a $22.00 price objective for the company.
  • Oppenheimer lifted their price target on shares of GrowGeneration from $15.00 to $25.00 and gave the company an “outperform” rating in a research report on Friday, August 28th.
  • Roth Capital lifted their price target on shares of GrowGeneration from $14.00 to $20.00 and gave the company a “buy” rating in a research report on Friday, September 18th.

One research analyst has rated the stock with a hold rating, seven have issued a buy rating and one has assigned a strong buy rating to the company’s stock. The stock currently has a consensus rating of “Buy” and a consensus target price of $16.14.

Summary…..

GrowGeneration continues to be one of the best cannabis plays in the U.S. Even during the pandemic, it was able to report record revenue and profitability.

Thanks to new acquisitions and products and a growing customer base, it should continue to report record results in the fourth quarter and 2021.

GRWG also has tremendous long-term growth potential, especially once recreational adult use marijuana is legalized. And that could be much sooner than later.

GrowGeneration has a market cap of $858.20 million, a P/E ratio of 974.99 and a beta of 2.32. GrowGeneration has a fifty-two week low of $2.62 and a fifty-two week high of $22.88. The company has a 50 day simple moving average of $16.09 and a two-hundred day simple moving average of $12.63.