What happened
Shares of hydroponics specialist GrowGeneration (GRWG 2.90%) are certainly living up to their name Wednesday morning, rising 27.8% through 11:30 a.m. ET after the company reported better revenue and a narrower loss than Wall Street had expected last night.
Heading into the first quarter of 2023, analysts had expected this marijuana stock to report an $0.11-per-share loss on sales of $55.9 million. In fact, GrowGeneration scored sales of $56.8 million, and managed to hold its loss to just $0.10 per share.
NASDAQ: GRWG
Key Data Points
So what
Not all the news was good.
Sales declined 31% year over year, and GrowGeneration's $0.10 loss -- while better than expected -- increased 11% year over year. Still, gross profit margin expanded by 170 basis points to 28.7%, and GrowGeneration cut its operating costs by an impressive 18%, resulting in operating losses (and net losses, too) not much worse in this year's Q1 than in last year's, despite the steep decline in sales.
In short, management battened hatches and tightened up the ship, and as a result, CEO Darren Lampert said the company is already "seeing incremental signs of stabilization in our business," giving management "a degree of cautious optimism."
Now what
Management therefore reiterated its guidance for this full year, and says it's still expecting to achieve between $250 million and $270 million in sales this year, which at the midpoint is slightly ahead of what Wall Street is looking for. Analysts still think the company will lose money this year -- about $0.35 per share.
Still, that would be a lot better than 2022's $2.69 full-year loss. And for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), management even holds out the potential for a slight profit of perhaps $1 million.
Is that good enough to justify an investment in a growth stock that hasn't earned a full-year profit since 2021, and isn't expected to earn another profit under generally accepted accounting principles (GAAP) before 2026 at the earliest (according to analysts)? Investors today certainly seem to think so. Personally, however, I'm going to have to see more evidence that GrowGeneration is on a sure path to profitability before investing.
