The world’s largest hydroponic provider (GRWG) got a nice bump today after a 3rd quarter earnings report that featured overperformance in multiple categories. The company – GrowGeneration, commonly referred to as just GrowGen – has 58 different locations across 15 different states. It’s up 38% so far – but what exactly happened to cause this surge?
The 3rd quarter saw a net loss of $7.2 million – compared to a positive net income of $4 million the previous year. Adjusted EBITDA came in at a loss of $2.6 million. This resulted in a loss per share of 12 cents. The one positive takeaway was an improvement in free cash flow. The company ended the quarter with no debt on its balance sheet and $71.1 million of cash.
We know what you’re thinking…why would results like this send a stock up almost 40%? Well, the company also took the opportunity to raise guidance for the remainder of the year. While revenue guidance previously sat at $250 million to $275 million, the company has upped the ante to $270 million to $280 million.
It’s no secret that the company – along with the entirety of the hydroponics industry – has struggled this year. This has mostly been caused by weakening demand. There has been a lull in new states legalizing cannabis, and thus, there hasn’t been the same year-over-year growth the industry has seen for so many years in a row. This is of course coupled with the same macroeconomic headwinds all companies are facing right now.
GRWG is down 80% in the past year, so this turnaround couldn’t have come at a better time. While the highlights from GrowGeneration’s third quarter weren’t necessarily “good”, they were better than anticipated. With the impact analyst and investor sentiment has on stock performance, that’s all it takes sometimes.
While some look at this earnings release as a step in the right direction, co-founder and CEO Darren Lampert offers a word of caution. He claims that while they are optimistic about the horizon, the worst of the cycle may not be behind GrowGen quite yet. However, Lampert doubles down on the sentiment that GrowGen is poised for success – mentioning expansion into new states, exploring the vertical farming market deeper, and developing their own proprietary fertilizers and indoor farming solutions.
With all this said – is now a good time to buy GRWG stock as momentum appears to be pushing the price back in the right direction? Or, should you await further validation that this trend is going to stick? You can get a clear answer on what your next move with GRWG stock should be through the VectorVest stock analysis tool – here’s what you need to know…
Poor Upside Potential & Safety vs Very Good Timing
The VectorVest system transforms the way you analyze stocks and assess opportunities forever. It simplifies trading by telling you everything you need to know about an opportunity in three easy-to-understand ratings. These are relative value (RV), relative safety (RS), and relative timing (RT).
These sit on a scale of 0.00-2.00, with 1.00 being the average. Anything to the left is underperforming, anything to the right is overperforming. This makes interpretation as effortless as possible – just pick the highest-rated stocks to win more trades!
Better yet, VectorVest offers a clear buy, sell, or hold recommendation based on these ratings. It doesn’t get any easier than this. Here’s the current situation with GRWG:
- Poor Upside Potential: The RV rating looks at a stock’s long-term price appreciation ability, projected three years out. As for GRWG, the current RV rating of 0.68 is poor. Moreover, VectorVest deems the stock to be overvalued at the current price of $4.56, with a current value of just $3.37.
- Poor Safety: An indicator of risk, relative safety analyzes a company’s financial consistency and predictability, debt-to-equity ratio, and business longevity. As for GRWG, the RS rating of 0.62 is poor on a scale of 0.00-2.00.
- Very Good Timing: As today’s price surge suggests, there is very good timing for GRWG right now. The RT rating of 1.34 reflects that. This is calculated by analyzing the direction, dynamics, and magnitude of a stock’s price trend. It takes the trend into account day over day, week over week, quarter over quarter, and year over year.
Taking all three of these ratings into account, the overall VST rating for GRWG is just 0.97 – which is fair. But, does it make the stock a buy? Does the very good timing outweigh the 2 red flags of poor upside potential and safety – or is it the other way around?
If you want to eliminate all guesswork and emotion from your strategy, VectorVest can help. Get a free stock analysis here to find out what your next move should be!
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VectorVest advocates buying safe, undervalued stocks, rising in price. As for GRWG, it has poor upside potential and safety, but very good timing.
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