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Why GrowGeneration Stock Is Soaring Today

By Keith Speights – Updated Aug 17, 2020 at 11:40AM

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Momentum continues from the company's sizzling second-quarter results last week.

What happened

Shares of GrowGeneration (GRWG 9.62%) were soaring 20.1% higher as of 11:22 a.m. EDT on Monday. The big gain appears to be due to continued momentum from the specialty hydroponic and organic gardening retailer's impressive second-quarter results announced last Thursday. With today's jump, GrowGeneration's share price is up more than 80% since the company provided its Q2 update.

So what

Were GrowGeneration's Q2 results really good enough to warrant the huge surge over the last few days? Yep.

The company reported its 10th consecutive quarter of record revenue, with sales vaulting 123% higher year over year to $43.5 million. GrowGeneration's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) skyrocketed 166% higher to $4.6 million. Its net income based on generally accepted accounting principles (GAAP) more than doubled to $2.6 million.

Cannabis plants growing under lights

Image source: Getty Images.

There were a couple of key factors driving GrowGeneration's sales and profits in Q2. First, the U.S. cannabis market is booming. GrowGeneration is basically a "picks-and-shovels" cannabis stock, meeting cannabis growers' hydroponic and organic gardening needs. Second, the COVID-19 pandemic has created a strong demand in organic gardening as Americans have been at home during lockdowns and shelter-in-place orders.        

Now what

Look for continued top- and bottom-line growth for GrowGeneration. The company expects full-year 2020 sales of between $170 million and $175 million with GAAP earnings of $7 million to $8 million. And it already gave partial guidance for full-year 2021, projecting sales of between $245 million and $260 million.

The big question now, though, is whether or not investors will begin to worry about GrowGeneration's premium valuation. Shares currently trade at nearly 167 times expected earnings.

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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