A Look at GrowGeneration’s Earnings and Risk Factors

Denver-based GrowGeneration (GRWG) operates hydroponic retail stores across 12 states. The company continues to expand its footprint through acquisitions. Let’s take a look at GrowGeneration’s latest financial performance, acquisitions, and risk factors.

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GrowGeneration’s Q2 Financial Results and 2021 Guidance

The company reported a 190% year-over-year increase in revenue to $125.9 million in the second quarter, surpassing consensus estimates of $111.69 million. EPS came to $0.11, compared to $0.06 in the same quarter last year. GrowGeneration ended Q2 with $124.5 million in cash and short-term securities.

For full-year 2021, the company raised its revenue guidance to $455 million – $475 million, versus the consensus estimate of $459 million. It previously anticipated 2021 full-year revenue in the range of $450 million – $470 million. (See GrowGeneration stock charts on TipRanks).

GrowGeneration Acquires Hoagtech Hydroponics to Expand Washington Area Footprint

GrowGeneration recently acquired hydroponic equipment seller Hoagtech Hydroponics to expand its presence in the Pacific Northwest. The addition of Hoagtech has increased GrowGeneration’s retail footprint to 59 locations. The company aims to have more than 70 locations by the end of 2021. It expects Hoagtech to boost its revenue from the Washington market to about $15 million annually. GrowGeneration has now closed 13 acquisitions in 2021.

GrowGeneration’s Risk Factors

The new TipRanks Risk Factors tool reveals 15 risk factors for GrowGeneration. Since December 2020, the company has revised its risk profile to introduce four new risk factors.

The company tells investors in a newly added Finance and Corporate risk factor that it identified some weaknesses in its internal controls over financial reporting. It says that it is working to improve its internal controls, but cautions that failure to put in place an effective internal control system over financial accounting issues could cause investors to lose confidence in its financial reports and could cause the stock price to decline.

A newly added Macro and Political risk factor relates to the COVID-19 pandemic. GrowGeneration says that a number of steps that it has taken to protect its staff and customers during this pandemic have led to significant incremental costs. It expects these costs to continue for the foreseeable future and adversely impact its operating results. Further, the company cautions that if there were an outbreak of COVID-19 cases in its facilities, it could be forced to close the facilities, which would adversely affect its business.

Finance and Corporate and Macro and Political are GrowGeneration’s top risk categories, accounting for 33% of the total risks each. The Finance and Corporate risk factor average for the sector is 39%. The sector’s Macro and Political risk factor is 14%. GrowGeneration’s shares have declined about 19% since the beginning of 2021.

Analysts’ Take

Following GrowGeneration’s Hoagtech Hydroponics acquisition, Lake Street analyst Mark Smith reiterated a Buy rating on GRWG stock. The analyst believes the acquisition fits with GrowGeneration’s long-term growth strategy. However, Smith lowered the price target to $63 from $77. The analyst’s new price target suggests 94.09% upside potential.

Consensus among analysts is a Strong Buy based on 5 Buys. The average GrowGeneration price target of $56.60 implies 74.37% upside potential to current levels.