With its selection of fertilizers, pesticides, hydroponics equipment, and gardening gear, Scotts is uniquely positioned because it serves the market for hobbyists just as gracefully as it serves commercial markets.
In the most recent quarter, Q2 of fiscal year 2021, Scotts reported that its quarterly revenue grew by 32.3% year over year and that its earnings grew by 22.9% in the same period.
That’s exactly the kind of gear that cannabis growers need, and management is confident that the industry’s growth will continue to be a major driver of sales.
What’s more, based on the company’s experience in states like California, the CFO estimates that there is a lag of roughly one and a half years between new cannabis legalization legislation and rising sales of the company’s products as demanded by the sector’s businesses.
While there’s no indication that the company will have trouble serving these debts anytime soon, its free cash flow will eventually be constrained by the scale of debt payments.
Management is cautioning investors about the impact of rising commodity costs, while also giving due credit to the margin-reducing effects of Scotts’ ongoing rapid expansion and its battle to meet surging demand.
I’m bullish on Scotts Miracle-Gro, and I think that the stock is worth purchasing this month, at roughly its current price.
The company’s trailer is hitched to the rocket ship of the cannabis industry, and management clearly understands the needs and timelines of the all-important commercial customers.