Worried about a stock market crash? Buy GrowGeneration
GrowGeneration (NASDAQ: GRWG) is not yet a household name. The company currently operates 63 hydroponics stores in 13 states between California and Maine.
Despite a relatively small number of stores, these locations, along with its e-commerce operations, make it the leading retailer of hydroponic supplies. As the cannabis industry it supports grows, it can grow with this emerging industry and generate returns for investors regardless of the state of the economy.
GrowGeneration supports a recession-resistant business
For those worried about a downturn, know that cannabis products are typically used for medical or recreational purposes – and both of these industries tend to thrive regardless of the state of the economy. Additionally, Markets and Markets, a market research company, found that farmers also use hydroponics to grow vegetables indoors. This is another recession resistant business that can benefit from hydroponic supplies.
To that end, Markets and Markets predicts a compound annual growth rate of 11% for the hydroponics market through 2026. This would take the global market from just under $ 10 billion in 2020 to nearly $ 18 billion by 2026.
With the company forecasting 2021 revenues of between $ 455 million and $ 475 million, it could experience tremendous growth, especially as farmers and recreational growers of cannabis and other crops will need the supplies. hydroponics provided by GrowGeneration.
In addition, her products are available online and she continues to rapidly expand her physical footprint. GrowGeneration has set a goal of growing to 100 stores by 2023 and eventually operating in all US states. As the largest company in its industry, economies of scale could work in GrowGeneration’s favor as it can offer a wider selection at a lower price.
Despite these increases, it is questionable how GrowGeneration can compete with companies like Home deposit Where Tractor supply, which also sells hydroponic supplies and operates stores of comparable size.
As a specialist in hydroponics, GrowGeneration can offer more choices in this specific area. By comparison, Home Depot and Tractor Supply sell more generalized product selections, making it harder to dive deep into hydroponics.
It also leaves GrowGeneration better suited for delivering private label products. To this end, the company acquired Canopy Crop Management and Char Coir, two companies that produce agricultural products for this industry. Such offerings not only give customers a reason to consider GrowGeneration, but could also allow the company to standardize products in this still disparate industry.
GrowGeneration’s financial growth
In the first half of 2021, revenue jumped to $ 216 million, an increase of 183% over the same period in 2020. This led to a net profit of more than $ 17 million over the six first few months of the year, a massive increase from $ 636,000. reported during the same period in 2020. Profits surged as operating expenses increased at a slightly slower pace of 121%.
Despite the massive growth, investors had even higher expectations and pushed retail stock down nearly 70% from the February high.
At that price, the stock is trading at a P / E ratio of around 75. Granted, this is higher than its peers – Home Depot’s earnings multiple is 26 and Tractor Supply’s is 28.
Still, these two companies are showing comparable single-digit store sales increases, well below the 60% increase seen by GrowGeneration in the second quarter. This means that the hydroponics retailer will likely experience significantly higher levels of growth than either of its peers, making up for the disparity in P / E ratios.
Due to its support for a booming cannabis industry and increased reliance on hydroponics to grow food crops, GrowGeneration’s stock is expected to drive growth regardless of the overall economy. While its addressable market may appear modest, GrowGeneration’s revenue growth indicates greater dominance in the high-growth market that it seeks to standardize.
Between that growth and the substantial discount where the stock is trading today, GrowGeneration could be a growth stock to buy for the foreseeable future.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.