GrowGeneration Is Riding the CBD Wave Higher
After a remarkable 881% return last year, GrowGeneration (NASDAQ:GRWG) has clearly arrived as one of the most intriguing cannabis plays.
After a remarkable 881% return last year, GrowGeneration (NASDAQ:GRWG) has clearly arrived as one of the most intriguing cannabis plays. In a matter of months, the country's largest chain of hydroponic and organic garden outlets has gone from a virtual unknown to one of the hottest ways to invest in the legalization of marijuana.
As more U.S. states move towards potentially giving the green thumbs up to medical and/or recreational marijuana use, Grow Generation stands to benefit from this market expansion and its well-established retail presence. The company had a head of steam entering this week's quarterly report. Let's see if it did enough to cultivate confidence among market participants.
What Were GrowGeneration's Q4 Results?
GrowGeneration's fourth quarter and full-year report did much to validate the viability of the U.S. hydroponics market. Fourth-quarter revenues increased 144% to $62 million largely due to new store additions while same-store sales jumped 58%.
For the full year, revenue was up 143% to $193 million and same-store sales rose 63%. It's not just the core retail business that is performing well. GrowGeneration's investments in its digital channels paid off big-time during the pandemic delivering 123% growth in 2021. With e-commerce sales still accounting for about 5% of overall sales and American consumers buying just about everything online these days, there is plenty more room for growth here. The commercial division posted even better year-over-year sales growth of 188%.
Although the bottom line was negative as expected, adjusted EBITDA came in at $19.2 million which compared favorably to the prior year adjusted EBITDA of $5.3 million. Plus, the profit margins are expanding.
In conjunction with the quarterly results, GrowGeneration announced the appointment of its new Chief Financial Officer (CFO). Jeffrey Lasher will appropriately take over the role on Tax Day (April 15th) following the retirement of former CEO Monty Lamirato. Mr. Lasher, who was the CFO at both West Marine and Crocs, should strengthen an already solid management team.
How Will GrowGeneration Perform in 2021?
For the current quarter, management expects to generate revenue of approximately $87 million. This forecast was well ahead of the consensus estimate of $76.5 million.
Full-year revenue guidance was raised to $415 million to $430 million. This marked a significant jump from the prior guidance of $335 million to $350 million and reflects the recent performance and management's confidence in the CBD retail environment. Even at the low end of the guidance range this would represent revenue growth above 100% for the second straight year. The adjusted EBITDA forecast has also increased a range of $48 million to $51 million.
Grow Generation is planning to expand its footprint from 52 to 60 hydroponic garden centers this year and in the process enter three new states. At this point last year there were 38 GrowGeneration centers across the U.S. This would bring its total to 15 states and further demonstrate how fast the market is expanding. The company has its sights set on reaching the 100-store mark by 2023.
GrowGeneration has had a busy start to the new year and appears well on its way to reaching its store target after making several early acquisitions. It has already acquired five businesses that together represent 14 stores including the four-store Grow Warehouse chain located in Colorado and Oklahoma. As it would appear, the hydroponics retail market is rather fragmented so there is plenty more to come from this roll-up strategy.
In the business-to-business (B2B) space, Grow Generation's recently announced takeover of Agron.io should continue to bolster the commercial side of this business. This newly acquired division operates an online ordering and fulfillment portal that commercial growers use to plan and optimize their production.
Is GrowGeneration Stock a Buy?
GrowGeneration stock has tacked on another 12% so far this year and while the atmospheric rise of 2020 is unlikely to repeat, it still looks like a buy. It is trading more than 30% below its February 10th peak of $67.75 and the downtrend of the past several weeks has been in low volume.
Where can GrowGeneration stock go from here? For starters, it is trading just below even the lowest price target on the Street ($45), but most sell-side analysts see it trending much higher. The most bullish target out there is $77 from Lake Street who is yet to chime in following the Q4 report. Who has chimed after this week's earnings is Oppenheimer which reiterated its buy rating on GrowGeneration and gave it a $60 target.
So, the correction from last month's record high appears to be a good opportunity to get in on a company with a leadership position in hydroponics retailing. True to the nature of the business, GrowGeneration is doing a great job of growing organically while sprinkling in some potent inorganic growth.