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Why GrowGeneration Stock Got Smoked Today | The Motley Fool

What happened

Hydroponics and indoor plant-growth products retailer GrowGeneration (NASDAQ:GRWG) announced the termination of an acquisition agreement today along with updated guidance as a result. When investors did the math, its stock took a hit. As of 1:30 p.m. EDT on Wednesday, GrowGeneration shares were down about 11.4%, near the lows of the day. 

So what

In July 2021, GrowGeneration said it would acquire HGS Hydro, a leading chain of hydroponic garden centers. Today the companies announced the mutual termination of the deal, and GrowGeneration said it would instead enter the New Mexico cannabis market by acquiring All Seasons Gardening, a different indoor-outdoor garden supply company. In the process, GrowGeneration revised its full-year financial guidance, and investors didn’t like what they saw. 

Now what

Business had been looking good for GrowGeneration. At the time of its first-quarter 2021 financial release, the company increased its annual revenue guidance to a range with a midpoint of $460 million, and adjusted EBITDA to $56 million. After it announced its intention to acquire HGS Hydro, it adjusted its revenue guidance upward in August by $5 million to a midpoint of $465 million. 

But even with the All Seasons acquisition, the company now only expects full-year revenue to be in the range of $440 million to $452 million, well below where it stood back in May 2021. It also dropped adjusted EBITDA guidance from its pre-acquisition prediction by $7 million. 

The good news is that 2021 still represents strong growth over the prior-year period. If it hits its current estimate, revenue would be up 150% from the first nine months of 2020. But today’s announcement introduces questions about why business will be slower than the company previously expected. Until investors hear more details (perhaps when management holds its third-quarter conference call), today’s stock reaction may not reverse course. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.



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