1. The Scotts Miracle-Gro Company (NYSE:SMG)
Short % of Float: 7.52%
Number of Hedge Fund Holders: 33
The Scotts Miracle-Gro Company (NYSE:SMG) is a leading player in the lawn care and hydroponics industry. However, financial challenges and strategic missteps continue to weigh on investor sentiment.
Facing declining sales in its cannabis-focused Hawthorne division, increasing debt, and an aggressive reliance on promotional spending to drive consumer engagement highlight ongoing challenges for the company’s Q1 2025, which ended December 28. Moreover, while total revenue grew slightly to $417 million from $410 million in the same quarter of 2023, a major chunk was contributed by early retailer load-in rather than organic growth. The Hawthorne segment sales dropped by 35% as the company continues exiting low-margin third-party distribution, making it a significant burden. Although the company attempts to improve profitability, the division continues to face uncertainty as management once again considers a spinoff, a plan that previously stalled due to a lack of suitable buyers.
Furthermore, The Scotts Miracle-Gro Company (NYSE:SMG) witnessed its SG&A expenses surge 9%, mainly due to rising advertising and retail activation costs, which now account for nearly 20% of the total sales. At the same time, concerns are raised about whether Scotts can sustain profitability without excessive promotional dependence, while the management views this spending as an investment in growth.
The Scotts Miracle-Gro Company’s (NYSE:SMG) financial stability continues to be a significant concern. The company’s leverage ratio stands at 4.52 times net debt to EBITDA, with substantial debt continuing to burden its balance sheets. While cost-cutting measures, including $75 million in planned supply chain savings, have significantly contributed to improving gross margins by 750 basis points, the gains are counterbalanced by increasing expenses and a slow recovery in core product demand. In addition, attempts to enhance margins through pricing strategies could risk backfiring if consumers push back against higher costs, particularly in a market where discretionary spending remains volatile.
Thus, The Scotts Miracle-Gro Company (NYSE:SMG) encounters significant structural challenges due to Hawthorne segments’ underperformance, a debt-heavy balance sheet, and a business model that is increasingly dependent on costly promotions. As such, due to investor skepticism, it is ranked as one of the worst agriculture stocks to buy, as the stock has plummeted by over 20% on a YTD basis.
Overall, Scotts Miracle-Gro Company (NYSE:SMG) ranks first on our list of the Worst Vertical Farming and Hydroponic Stocks to Buy. While we acknowledge the potential of SMG, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than SMG but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
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