Scotts Miracle-Gro (SMG): Valuation Insights Following Potential Exit From Cannabis Business and Strategic Shift

Scotts Miracle-Gro (SMG) just surprised the market with news that it may exit the cannabis business by selling its Hawthorne Gardening division. This represents a dramatic pivot after the company invested nearly $2 billion into the effort. With sales slumping and tough federal regulations continuing to challenge profitability, this move is likely to attract the attention of investors considering the company’s next steps. Management has indicated that while a future return to cannabis is not completely off the table, current headwinds have proven too strong for now.

This decision follows a volatile period for the stock. In the past year, Scotts Miracle-Gro has declined by 8%, though shares have rebounded by 5% in the past three months. Long-term holders are still recovering from a difficult five-year stretch. Between efforts to enter new markets and a modest increase in net income, it is clear that market sentiment is fluctuating. While some momentum is returning, a full reversal has yet to occur.

After a challenging period and potential strategic shift, the question remains: does the current share price represent a genuine buying opportunity, or is the market already accounting for all the risks and future growth potential?

Most Popular Narrative: 16.6% Undervalued

According to community narrative, Scotts Miracle-Gro is considered undervalued based on analysts’ expectations for profit growth and strategic shifts, with a fair value noticeably above the current share price.

Significant ongoing investments in supply chain technology, automation, and process efficiencies are unlocking about $75 million in cost savings for fiscal '25 and another approximately $75 million planned for '26/'27. These efforts are directly driving gross margin recovery (aiming for 35% or higher), boosting EBITDA, and improving long-term net margins.

What is fueling this bullish narrative? There is a blend of profit expansion, margin increases, and cost-saving measures behind these calculations. If you are curious about which future assumptions make up this sizable valuation gap, find out what really drives this contrarian assessment of Scotts Miracle-Gro’s potential upside.

Result: Fair Value of $76.00 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, shifting consumer demand for organic products and unpredictable weather could limit revenue growth and present challenges to the optimistic case for higher earnings.

Find out about the key risks to this Scotts Miracle-Gro narrative.

Another View: Are the Numbers Telling the Same Story?

Looking at things differently, our DCF model also suggests Scotts Miracle-Gro is undervalued compared to its current price. However, every model has its assumptions, so various factors could influence the outlook going forward.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Scotts Miracle-Gro for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Scotts Miracle-Gro Narrative

If you have a different outlook or want to investigate Scotts Miracle-Gro on your own terms, you can quickly put together your own analysis and do it your way.

A great starting point for your Scotts Miracle-Gro research is our analysis highlighting 3 key rewards and 3 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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