Scotts Miracle-Gro- Yard Care to Cannabis

MoneyShow - finance.yahoo.com Posted 5 years ago

While not a pure play, Scotts Miracle-Gro (SMG) is a cannabis investment that has a ton of potential in the long run, explains growth stock expert Brit Ryle, editor of The Wealth Advisory.

The stock had a rough year in 2018. Shares were up as high as $108.61 in January. And they cratered to under $60 by December. Much of that drop was in January after the company reported dismal earnings.

More from Brit Ryle: Brit Ryle's 10 Favorite Dividend Reinvestment Ideas for 2019

And things didn’t get any better, as shares continued to stumble and management continued to temper future expectations. But things are starting to look a lot better at Scotts now. Since those December lows, shares are up over 30%.

Scotts reported a loss in January. But as a seasonal business that focuses on lawn and gardens in the Northern Hemisphere, that’s completely expected.

What wasn’t expected was the incredible revenue growth from the cannabis-directed Hawthorne Gardens unit.

That jumped 84% from last year. And it eased investors’ fears that Scotts had grown too quickly.

It shows that Scotts was able to bring scale to the hydroponic nutrient business. And now that it’s achieved scale, it can start cutting costs. That’s one of the reasons management and analysts are so cheery about the future at Scotts.

Earnings are expected to grow at over 20% annually for the next several years. That’s well above industry averages. And it makes Scotts a new growth story.

If you were to base Scotts’ current value on the value of those future cash flows, you’d be willing to pay over $200 per share. But you can get them for just $80 right now.

See also: What's Buffett's Berkshire Hathaway Worth?

I’m not saying Scotts is going to shoot to $200 a share. But it was a $100 a share company about a year ago. And it’ll be back there in less time. It’s already the main supplier for hydroponic nutrients for the U.S. cannabis industry. And once that industry goes nationwide, revenues are going to go off the charts.

But it’ll be folks like us, who were buying while shares were down and nobody had any love for this loser, that get rewarded when that happens. Everyone who waits is going to be buying our shares and cementing our profits.

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