A quickie for you today, since a few folks have asked…
One of the seemingly 10,000 Banyan Hill newsletters is being teased today, and the bait they’re dangling is that Jeff Yastine is about to recommend a stock to his subscribers on Wednesday… which is tomorrow, so we’ll be brief so you can have some time to think before this momentous event occurs.
And yes, fine, I should be accurate — Banyan Hill currently says they publish 29 newsletters and trading services, of which Jeff Yastine is the headline guy for three. This particular ad is for Yastine’s Profit Line, which is apparently aimed at identifying stocks with insider buying or something similar — the presentation with these purported “blue line” indications for buying seems pretty malarkey-ish, mostly because anyone can go back in time and mine the data to find some huge winners and identify a preceding “event” that helped move the stock (it’s finding the future ones that’s hard, not the past ones).
But I don’t know much about this particular newsletter, other than that it just launched (they’re looking for “Charter Members,” which means the claims they make of performance are presumably all back-testing results), and that they’re charging a very high price for something that is brand new and has no track record ($1,995, which they say is “half price”… with no refunds — they have the ever-popular “if you don’t like it, we’ll give you another year free!” guarantee).
So… we’ll just focus on ID’ing the teased pick they’re promising to release tomorrow… ready?
So, what clues do we get?
This is from one of the emails I received, this time from Matt Badiali (who himself has four newsletters over at Banyan Hill and has touted a few pot stocks in his day)…
“Don’t miss tomorrow’s hot, new recommendation…
“It’s a $4 cannabis stock that could easily go on to trade for $40 in the next year.”
And, this is the part that caught my eye, it’s not really a pot company — apparently it’s a supplier to the industry:
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“Instead, it’s a kind of ‘warehouse’ store — similar to Home Depot, Lowe’s or Costco — but it caters to the cannabis industry.”
I imagine we all know how tough the retail business is… but still, selling grow lights has to be less risky than trying to profit from growing marijuana yourself, right? It’s the ol’ “picks and shovels” idea (selling equipment to the prospectors, instead of digging for gold yourself).
Any other clues? We do get this…
“A former CEO of one of these major ‘superstores’ recently joined the team.”
And, of course, there’s that “patented profit line” business…
“His patent pending stock indicator — the ‘profit line’ — recently identified a ‘hidden’ pile of money at this company that almost nobody else seems to be paying attention to.”
So…. who is it? Thinkolator sez this recommendation is almost certainly going to be… GrowGeneration (GRWG), which is indeed a national chain of warehouse stores for marijuana growers — selling hydroponics equipment and everything else the aspiring weed gardener might need (and, of course, they sell a lot to the larger grower businesses, too — not just individual growers… they list Curaleaf and MedMen and a few others among their larger commercial customers).
This is how they describe themselves:
“GrowGeneration (GrowGen) owns and operates specialty retail hydroponic and organic gardening stores that sell a vast array of products to professional and small growers via 25 locations in 9 states. GrowGen carries and sells thousands of products, including organic nutrients and soils, advanced lighting technology, state of the art hydroponic and aquaponic equipment to be used indoors and outdoors.”
And yes, GrowGeneration did hire Bob Nardelli as an advisor this past summer, to help them explore ways to get more value out of their partnerships. Nardelli was CEO of Home Depot (HD) from about 2001 to 2007 after being passed over for the CEO job at GE (when Jeff Immelt was hired), though it’s perhaps worth noting that Home Depot was a terrible investment during his tenure and he was fired, with one of the more egregious “golden parachute” packages ever (and as luck would have it, he went from there to run Chrysler right before that collapsed — I don’t know if it’s bad luck or bad timing or bad management, but Conde Nast did put him on the list of “Worst American CEOs of All Time”).
GrowGeneration has been, well, growing pretty rapidly — they’ve gone from about 14 stores in four states when I first looked at the stock a year and a half ago, to now 25 locations in nine states… and they are now profitable, albeit barely, and they think they can grow both revenue and earnings pretty rapidly as they continue to build out their store base.
In general, this kind of business has some appeal as a “picks and shovels” type of idea — this is what I wrote about GrowGeneration way back in April of 2018, when it was being teased by one of the Casey newsletters (the stock is pretty close to the same price it was at that time, though the market cap has doubled because they’ve raised more money to keep expanding)…
“I like this a lot better than I like the growers, just because the valuation is not as nutty and it’s a much easier business to understand (for most growers, we still really have no idea what the pricing will be like for regulated recreational marijuana, or whether legalization will bring prices down enough to really do away with the black market)”
You can see GrowGeneration’s investor presentation here, it all sounds pretty good and they are making the individual locations more efficient and growing their commercial sales and online sales (both of which were also key to Home Depot’s recovery after Nardelli, incidentally)… and their guidance as of the third quarter report is that they should have “non-GAAP EBITDA” of 14-18 cents per share for 2019, on about $75 million in revenue.
The big news is that GRWG uplisted to the Nasdaq last week, so they’re getting a bit more attention… and they did convert their convertible debt to equity earlier in the year, so perhaps that’s part of the “hidden money” Yastine is hinting at. They also got some windfall stock options for lots of executives upon the Nasdaq listing, so I assume everyone at the company is pretty excited about that.
The company seems to be doing well, the few analysts who cover it expect 2020 to be a good year (with 20 cents in earnings per share, and an average price target of $7.50). So that makes $4 a share seem pretty reasonable (though those analysts may well be buttering them up to get future business… never trust the analysts too much when there are just a few covering a small cap stock, they’re often there for the investment banking business). Here’s a comment from one of those analysts from September, per Briefing.com (the stock was at $5 at the time):
“Alliance Global Partners initiates GRWG with a Buy and price target of $8. Analyst Aaron Grey noted, ‘We initiate coverage on GRWG with a Buy rating and an $8 PT. We believe that GRWG presents an attractive ancillary play in the burgeoning cannabis industry as a leading hydroponics retailer in the US, with a strong top-line story (on-track to double revenues for the fourth straight year) through organic store growth and tuck-in acquisitions. What is more, with GRWG’s 9% EBITDA margin in 2Q19, we believe the company has proven its ability to grow the business while generating profit, with further margin enhancement opportunity via GMs (private label opp) and SG&A (scale and ERP system).'”
And I promised to make it pretty quick and give you time to think it over, so I’ll leave you there for today — excited about Yastine’s next pick? Think it’s got some appeal as a relatively sturdy survivor (so far) in the recently difficult marijuana business? Have other ideas you prefer? Let us know with a comment below… thanks for reading!