What happened
GrowGeneration (GRWG 3.67%), which makes hydroponic supplies and equipment used by the cannabis industry, saw its shares rise 16.1% on Monday. The stock closed at $7.34 a share on Friday, then opened at $7.58 on Monday before rising to a high of $8.52 in the early afternoon. The stock is still down more than 36% this year and more than 81% over the past 12 months.
So what
Two factors were behind the stock's rise. First, after what has been one of the worst months ever for the Nasdaq, the exchange rose 2% on Monday.
Image source: Getty Images.
The other factor was a positive reaction to GrowGeneration's announcement Monday before the market opened that it was purchasing the Horticultural Rep Group, an Ogden, Utah, marketing and sales company of horticultural products that had $10 million in revenue in 2021. The cost of the deal was not disclosed.
The move continues GrowGeneration's expansion plans. The company operates 63 stores that sell specialty retail hydroponic and organic gardening equipment, up from 26 stores roughly two years ago. The company said it expects to expand into Missouri, Illinois, Arizona, Pennsylvania, New York, and New Jersey, building its base as the largest national hydroponics dealer.
GrowGeneration went public with an initial public offering in 2016 and is on track for its fifth consecutive year of revenue growth and its third consecutive profitable year. In its third-quarter report, the company gave guidance for 2021 annual revenue between $435 million and $440 million. However, in a recent investor presentation, it downgraded that to between $420 million and $422 million. Either way, it represents a significant increase over the $193.37 million in revenue it posted in 2020.
The company reported $332 million in revenue through nine months, more than it had in annual revenue in 2019 and 2020, combined. Through nine months, the company reported earnings per share (EPS) of $0.29, compared to $0.09 in the same period in 2020. Adjusted earnings before interest, taxation, deprecation and amortization (EBITDA) through nine months was $36.3 million, up from $13.4 million in the same period in 2020.
Now what
Investors will be watching to see if the share price jump is a momentary blip or the sign that sentiment is turning around for GrowGeneration. Some investors in the cannabis-connected company may have been concerned when the company reported that same-store revenue had only risen by 16% in the third quarter, its slowest increase since it went public. However, it seems to be discovering growth via expansion and acquisitions and it increased its gross profit margin to 29.4% in the third quarter, compared to 26.5% year over year.
