7 Best Vertical Farming and Hydroponic Stocks to Buy

4. Hydrofarm Holdings Group, Inc. (NASDAQ:HYFM)

Number of Hedge Fund Holders: 5

Hydrofarm Holdings Group, Inc. (NASDAQ:HYFM) is a leading manufacturer and distributor of hydroponics equipment and supplies for controlled environment agriculture. Their products include climate control solutions, growing media, and nutrients, along with a wide range of proprietary branded items. For over 40 years, Hydrofarm has supported growers by making cultivation easier and more efficient.

In Q2 2024, Hydrofarm Holdings Group, Inc. (NASDAQ:HYFM) net sales declined by 13.1% to $54.8 million compared to the same quarter last year. This decrease was primarily due to a 10.3% reduction in product volume and mix, driven by oversupply in the cannabis industry. Gross profit also took a hit, dropping to $10.9 million, compared to $14.5 million in the prior year.

While the company’s net loss widened to $23.5 million from $12.9 million, largely due to a non-cash loss from the sale of its IGE assets, Hydrofarm Holdings Group, Inc. (NASDAQ:HYFM) improved its adjusted EBITDA, delivering a modest $1.7 million in the quarter. The company’s restructuring efforts resulted in a 20% reduction in SG&A expenses, underscoring its operational discipline.

Furthermore, Hydrofarm Holdings Group, Inc. (NASDAQ:HYFM) maintains strong liquidity with $30.3 million in cash and $20 million in borrowing capacity. The company held a zero balance on its credit facility and generated $3.8 million in operating cash flow during the quarter. Although free cash flow dipped slightly to $3.4 million due to inventory investments, the company’s effective cash management and cost-saving efforts position it well for future opportunities.

In the past month, Hydrofarm saw a stock upsurge of nearly 29%, driven by its restructuring efforts and cost-saving initiatives that helped alleviate margin pressure. However, the company experienced a 20% decline YTD, primarily due to oversupply in the cannabis sector, pricing pressures, and softer demand for hydroponics products amid economic uncertainty.

While analysts currently project a downward trend, the company is expected to benefit from the growing U.S. adult-use cannabis market, which represents 56% of global sales. Additionally, five hedge funds, with a combined $1.1 million investment, remained bullish on Hydrofarm’s potential for future growth, according to Insider Monkey’s Q2 2024 database, earning it a spot on our list of the best vertical farming and hydroponic stocks to buy