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GrowGeneration (GRWG) Hits 52-Week High, Can the Run Continue?

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Shares of GrowGeneration Corp. GRWG scaled a fresh 52-week high of $30.10 during the Nov 18 trading session, before retracting to close at $27.73. The company has been gaining on record third-quarter 2020 revenues, an upbeat view for 2020, successful acquisitions and ongoing strength in sales — online, and commercial and retail businesses. Further, the company’s omni-channel approach launched in September 2020, which involves rebranding of its existing e-commerce operation with an aim to facilitate e-commerce across all its locations, has also been contributing to the rally.

The company has a market capitalization of $1.36 billion. Average volume of shares traded over the last three months is approximately 6.5 million.

GrowGeneration’s current-year earnings estimates have been revised upward by 15% to 15 cents per share over the past 90 days. The same for 2021 has moved north by 24% to 36 cents per share. The Zacks Consensus Estimate for earnings for 2020 suggests year-over-year growth of 50% and the estimate for 2021 indicates year-over-year improvement of 137%.

Share Price Performance

Shares of the company have skyrocketed 596% year to date, against the industry’s decline of 2.6%.

Driving Factors

Stellar Q3 Results: GrowGeneration reported third-quarter 2020 adjusted earnings improved 100% year over year to 6 cents per share. Revenues of $55 million reflected an impressive year-over-year growth of 152%. Adjusted EBITDA was $6.6 million, reflecting a substantial improvement from $2 million in the prior-year quarter. Notably, the company generated record revenues and EBITDA for the 11th consecutive quarter.

Upbeat Guidance: GrowGeneration hiked revenue guidance for 2020 to $185-$190 million from the prior projection of $170-$175 million. Adjusted EBITDA is now expected between $19 million and $20 million, up from the previous estimate of $17-$18 million.

Robust Growth in Retail Sales: GrowGeneration was marked as an essential supplier to the agricultural industry amid the pandemic, and thus all of its stores have been in operation. In the first nine-month period of 2020, net income from store operations surged 163% to $22.6 million. The company is averaging 12,000 walk-in transactions per week.

Scope to Grow Commercial Base: The company’s commercial division sells to large commercial customers, who are primarily licensed growers of medicinal and non-medicinal cannabis. In the first nine-month period of 2020, the commercial division’s revenues surged 200%. The division currently services around 1,000 commercial accounts. The company has identified over 14,000 licensed hemp and cannabis growers in the United States, and believes there is significant room to expand its base of commercial customers.

E-Commerce Strategy to Yield Results: For the nine months ended Sep 30, 2020, GrowGeneration’s online revenues soared 140% year over year to around $7 million. New visitors to its website are trending over 100,000 per month. The company has rebranded its existing e-commerce operation, HeavyGarden.com and GrowGen.Pro, as growgeneration.com, which will be an omni-channel sales approach to facilitate e-commerce across all its locations. It will be customer friendly and provide the delivery option or pick-up from store. This initiative is expected to bolster the company’s sales.

Acquisitions are Key to Growth: The company's goal is to reach 50 garden centers and 15 states in 2021. It has been active on the buyout front lately and made significant progress towards achieving this goal. It acquired certain assets of Health & Harvest LLC and of H2O Hydroponics, LLC in February and June, respectively. In August, 2020, the company purchased the assets of Emerald City Garden, located in Concord, CA. In October 2020, the company purchased the assets of Hydroponics Depot, located in Phoenix, AZ and the assets of The Big Green Tomato, a two-store chain in Battle Creek and Taylor, MI. Recently, GrowGeneration completed the buyout of GrowBiz — the third largest chain of hydroponic garden centers in the United States. The acquisition will add around $50 million to its annual revenues. Following the buyout, GrowGeneration’s total number of hydroponic garden centers currently stands at 36.

Zacks Rank & Stocks to Consider

GrowGeneration currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Agnico Eagle Mines Limited AEM, Barrick Gold Corporation GOLD and New Gold Inc. NGD. While Agnico Eagle sports a Zacks Rank #1 (Strong Buy), New Gold and Barrick carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Agnico Eagle has an expected earnings growth rate of 103.1% for 2020. Its shares have returned 12% year to date.

Barrick has an expected earnings growth rate of 114.8% for 2020. The company’s shares have gained 32% so far this year.

New Gold has an expected earnings growth rate of 103% for 2020. The company’s shares have surged 105% year to date.

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Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

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