Extra time at home over the past few years allowed many individuals the ability to take up new hobbies, some of which included gardening and lawn care. This increased interest throughout 2020 was beneficial for lawn and garden supply companies like Scotts Miracle-Gro.
While the company stock soared to new heights in 2020 and 2021, SMG stock is now taking a tumble. While it’s clear that the stock is not performing well, what’s really behind the SMG stock’s recent downward trend?
Scotts Miracle-Gro 101
The Scotts Miracle-Gro Company is a multinational corporation headquartered in Marysville, Ohio. The company was founded in 1868 when O.M. Scott began selling lawn seeds to customers.
It has since grown into a multi-billion dollar company that sells consumer lawn, garden, and pest control products.
The company’s reported revenue in 2019 was $3.2 Billion. Annual revenue has continued to grow over the last several years, reaching $4.1 Billion in 2020 and $4.9 Billion in 2020.
Scotts Miracle-Gro began trading on the New York Stock Exchange, under the stock ticker SMG, in 1992.
On its IPO debut, SMG began trading at around $19 per share. In March 2021, the stock hit an all-time high of around $255 per share. Just a little over a year later, SMG stock has fallen by over $100 a share.
The company has a market cap of around $7.1 Billion. Its 52-week low is $110.81 per share, and its 52-week high is $254.34 per share.
While Scotts Miracle-Gro demonstrated steady growth over the last three years and throughout the early stages of the pandemic, the company has been hit hard over the last 12 months. Why?
Why Is SMG Stock Tumbling?
There seems to be a variety of factors contributing to SMG’s downward trajectory. While the company has not fallen into financial ruin by any means, its 2021 earnings looked less than stellar.
It’s important to note that Scotts Miracle-Gro actually got a solid boost during the pandemic as many households focused more on gardening and lawn care when they were stuck at home for prolonged periods. This boost is now making SMG’s 2021 numbers look pale in comparison.
There’s no denying that sales comps look poor for Scotts Miracle-Gro. The company recently released its Q1 2022 fiscal report, highlighting a 24% year-over-year drop. The company lost $50 million, or $0.90 per share, during Q1 2022.
Along with a slowdown in sales of gardening and lawn care products, Scotts Miracle-Gro is a company with ties to the cannabis industry, which has been hit hard over the last year.
Scotts Miracle-Gro owns Hawthorne Gardening Company, which is responsible for producing large amounts of indoor and hydroponic products used for growing cannabis.
Overall, supply chain issues combined with new state-authorized markets related to marijuana have resulted in a significant slowdown in cannabis sales. This slowdown has impacted all cannabis-related stocks, including SMG.
While 2021 and Q1 2022 earnings are not looking good for SMG, company executives remain hopeful for SMG’s future.
Will SMG Stock Be Able to Recover?
In early February 2022, Scotts Miracle-Gro released its Q1 2022 Earnings Conference Call. During the call, many of the company’s executives spoke on SMG’s recent revenue shortcomings and highlighted how the company plans to combat these issues. Jim Hagedorn, the Chairman and Chief Executive Officer of Scotts Miracle-Gro, highlighted the overall success the company has had over the past six years.
According to Hagedorn, the past success of the SMG shows that current circumstances will soon be overcome because of the company’s resilience and strong team. Hagedorn went on to say,
“…we’ve built a market-leading position and driven strong returns for our retail partners by investing strongly behind innovation as well as sales and marketing support. These competitive advantages drove both consumer engagement before and during the COVID crisis. We didn’t outperform our competitors during COVID due to dumb luck. We won because consumers trusted our brands to deliver the results they are seeking.”
During the Earnings Conference Call, Hadegorn went on to discuss current struggles with the supply chain and how the company has been making strides to rectify the issue. In regard to the supply chain, Hagedorn told shareholders,
“Over the past few months, there have been significant improvements to the Bonnie supply chain, both in the way of process improvement and a new influx of talent. We’re also seeing continued integration of our sales and marketing efforts. This should result in a better in-store experience for consumers and more cross-selling opportunities for our core brands, especially Miracle-Gro.”
Overall, the executives remain hopeful for the future when it comes to the recovery of Scotts Miracle-Gro. According to Hagedorn, the company saw this market decline coming as far back as June, which has given it ample time to prepare.
In Hagedorn’s view, there is no doubt that SMG will come back better than ever once supply chain issues and cannabis legalities are sorted out.
Is SMG Stock a Buy, Sell, or Hold?
It’s clear that Executives of the Scotts Miracle-Gro company remain optimistic about the company’s future, but should investors share this same optimism?
While 2021 earnings were not great for the company, there is reason to believe that the company will make a full recovery as supply chain issues are sorted out. But when that will be remains uncertain.
In addition, the company may even be able to make huge revenue strides if cannabis use becomes legalized across the United States.
With SMG sitting in a promising industry that is likely to see growth over the long term, its stock is on sale right now. Just don’t expect to make a fast buck on it in the short-term.
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