Hydrofarm (NASDAQ:HYFM) has seen a rather spectacular public debut with shares more than doubling on its first day of trading as investors are apparently attracted to the relatively modest sales multiple and rapid growth of this supplier to the growing controlled environmental agriculture and cannabis industry.
While I too see the long term potential and recognize the rapid growth, it seems that much of this growth is fueled by Covid-19 and while I would be happy to nibble around the offering price, I see no appeal near the $50 mark.
Doing As It Says
Hydrofarm has been around for quite a while, in fact some 40 years. Until the past decade the company was mostly familiar within the cottage industry, operating to serve the specialized needs from its customers.
The company operates at the forefront at a huge new opportunity, that is supplying the consumer-led movement related to the legalization of cannabis and the controlled environment agriculture revolution, called CEA. The latter is a huge opportunity as it requires less land, less water, fewer chemicals, less carbon emissions and superior crop yields, while many believe that cannabis is the next large consumer industry.
With these markets set to become huge industries in the future, the company aims to play a leading role in this by focusing on innovation, its trusted brands, best-in-class service and desire to capitalize on the fragmented industry, looking to play a leading role in M&A.
With trailing sales of just over $300 million the company is relatively small, yet the long term growth rate is very impressive. Between 2005 and now, the company has grown sales at an average rate around 16%.
Products supplied to the customers include lighting, growing media, soil alternatives, nutrients, equipment, with over 6,000 SKUs in the assortment. The company has branded and leading products, supported by quite a
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