GrowGeneration Corp. (NASDAQ:GRWG) Just Reported Earnings, And Analysts Cut Their Target Price

As you might know, GrowGeneration Corp. (NASDAQ:GRWG) just kicked off its latest quarterly results with some very strong numbers. Revenues of US$71m beat estimates by a substantial 24% margin. Unfortunately, GrowGeneration also reported a statutory loss of US$0.12 per share, which at least was smaller than the analysts expected. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.

Our analysis indicates that GRWG is potentially undervalued!

Taking into account the latest results, the current consensus, from the eight analysts covering GrowGeneration, is for revenues of US$273.8m in 2023, which would reflect a considerable 13% reduction in GrowGeneration's sales over the past 12 months. Losses are predicted to fall substantially, shrinking 86% to US$0.36. Before this earnings announcement, the analysts had been modelling revenues of US$266.0m and losses of US$0.43 per share in 2023. There's been a pretty noticeable increase in sentiment, with the analysts upgrading revenues and making a favorable reduction in loss per share in particular.

Yet despite these upgrades, the analysts cut their price target 17% to US$5.25, implicitly signalling that the ongoing losses are likely to weigh negatively on GrowGeneration's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values GrowGeneration at US$8.00 per share, while the most bearish prices it at US$3.50. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with a forecast 10% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 56% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 6.0% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - GrowGeneration is expected to lag the wider industry.

The Bottom Line

The most obvious conclusion is that the analysts made no changes to their forecasts for a loss next year. Fortunately, they also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of GrowGeneration's future valuation.

Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for GrowGeneration going out to 2024, and you can see them free on our platform here.

We don't want to rain on the parade too much, but we did also find 2 warning signs for GrowGeneration (1 is significant!) that you need to be mindful of.

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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.