Grow Your Portfolio With Scotts Miracle-Gro

Summary

• Scotts Miracle-Gro has largely benefitted from consumers staying at home, and this trend should continue this year.
• Its hydroponics segment shows promising growth, and management is making investments behind product innovation.
• I highlight the valuation, balance sheet, and risks worth considering.

Tech companies seem to get all the attention and are trading at nosebleed valuations. This creates opportunities for investors to focus on “old economy” stocks that have strong and stable growth profiles. In this article, I’m focused on Scotts Miracle-Gro (NYSE:SMG) which has similarly benefitted from the current pandemic, and has growth drivers worth noting. I evaluate whether SMG makes for an attractive buy at present, so let’s get started.

(Source: Company website)

What Makes SMG A Buy

Scotts Miracle-Gro is one of the world’s largest marketers of branded lawn and garden care for consumers. Its top and well-recognized brands include Scotts, Miracle-Gro, and Ortho. It also has a wholly-owned subsidiary, the Hawthorne Gardening Company, which is a leading provider of nutrients, lighting and other materials used in the indoor and hydroponic growing segment.

SMG has performed rather well in the current environment, as the pandemic has driven consumers to adopt more stay-at-home activities, such as gardening and plant cultivation. This was reflected in SMG’s strong operating results for the fourth quarter and full year 2020 (ended September 30, 2020). U.S. consumer sales were up 90% YoY in Q4’20, and up 24% YoY for the full year 2020. Hawthorne also saw strong growth, with Q4 and full year 2020 seeing 68% and 61% YoY increases, respectively.

The significant growth of Hawthorne is additionally meaningful for SMG, as it produces higher margins than the consumer segment. This contributed to the 50 bps YoY improvement in SMG’s adjusted gross margin, to 33.0% for full year 2020. I see Hawthorne as being a strong growth driver for SMG going forward. This is supported by market research, which projects the hydroponics market to grow at an 11.6% CAGR from $9.5B in 2020 to $17.9B by 2026.

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Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This article is for informational purposes and does not constitute as financial advice. Readers are encouraged and expected to perform due diligence and draw their own conclusions prior to making any investment decisions.