Shares of GrowGeneration (GRWG -0.54%), a retailer of the hydroponic growing equipment often used to grow marijuana, fell sharply at the open of trading on Thursday, losing 11.5% of its value during the first few minutes. The news that precipitated the swift decline came out before the open, and investors clearly were not pleased with the fourth-quarter and full-year 2021 update the company provided.
On the surface, it's kind of hard to get too upset with the updated guidance GrowGeneration provided for 2021. For example, the current guidance for full-year 2021 revenue in the range of $420 million to $422 million represents more than a 100% year-over-year increase compared to the $193 million it brought in for 2020. Full-year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) are now expected to be between $31.5 million and $33.5 million, compared to $19.2 million in 2020. It looks like 2021 was a year of strong growth in many ways.
So what's the problem? The new guidance was actually lowered from the guidance offered in the third quarter. Specifically, when the company reported third-quarter 2021 earnings, management was calling for full-year revenue between $435 million and $440 million. Adjusted EBITDA was expected to range between $41 million and $43 million. The fourth quarter clearly didn't work out the way management expected, with same-store sales decreasing 12.4% year over year. Overall, it looks like investors were taken by surprise by what is likely to be a relatively weak quarter and reacted accordingly to the dour news.
GrowGeneration is a relatively small company (its market cap is around $600 million) that's in growth mode, highlighted by the still-massive year-over-year revenue increase expected in 2021. In fact, it just recently acquired a company meant to expand its product offerings. Small, fast-growing companies often experience some turbulence as they grow, so this update should probably be taken with a grain of salt.
Short-term traders might have been let down here, but long-term investors will likely want to wait for a fuller explanation of the results in the company's upcoming earnings report, expected in early March, before having a knee-jerk reaction.