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Why GrowGeneration Stock Is Crushing It Today

By Keith Speights – Jun 30, 2020 at 12:36PM

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Investors are reacting enthusiastically to the company's stock offering.

What happened

Shares of GrowGeneration (GRWG 0.28%) were crushing it on Tuesday, with the stock jumping 13.4% as of 11:31 a.m. EDT. The big gain came after the specialty hydroponic and organic gardening retailer announced the pricing of a public offering of 7.5 million shares.

So what

In most cases, a stock offering causes a company's shares to fall. Investors know that with new shares on the market the value of existing shares will be diluted. So why did GrowGeneration stock soar instead of sink?

Cannabis plants growing in an indoor hydroponic facility

Image source: Getty Images.

The most likely reason is that investors are confident about the company's ability to use the funds generated from the stock offering to continue its remarkable growth. GrowGeneration posted revenue of $33 million in the first quarter, up 152% year over year. 

GrowGeneration expects to raise gross proceeds of around $42 million. That's significantly more than the $30 million stock offering originally planned. The company stated that it intends to use the additional cash "primarily to expand its network of hydroponic/garden centers through organic growth and acquisition, and for general corporate purposes."

Now what

Look for GrowGeneration to make more acquisitions with its bigger cash stockpile. The company recently bought the assets of H20 Hydroponics, a large hydroponic garden center in Lansing, Michigan. 

Keep your eyes on the status of marijuana legalization efforts as well. Many of GrowGeneration's customers are cannabis growers. As additional states legalize cannabis, GrowGeneration's potential growth opportunities will increase.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends GrowGeneration. The Motley Fool has a disclosure policy.

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