We recently compiled a list of the 7 Best Vertical Farming and Hydroponic Stocks to Buy. In this article, we are going to take a look at where GrowGeneration Corp. (NASDAQ:GRWG) stands against the other vertical farming and hydroponic stocks.
The agriculture sector has always been crucial to both the global economy and everyday life. However, to meet rising food demands, harmful farming practices have been widely adopted, contributing to climate change, deforestation, and soil degradation. As a result, sustainable and eco-friendly farming innovations have become essential. Vertical and hydroponic farming are two such innovations, offering environmentally friendly and efficient methods for producing crops in a way that reduces the strain on the planet.
Sector Performance
The broader market had a strong performance in 2024, largely driven by technology stocks in the first half, resulting in a roughly 18.0% year-to-date (YTD) increase. However, future performance remains uncertain due to ongoing market volatility.
In 2022, inflationary pressures in the U.S. reached a peak, fueled by rising input costs for energy, transportation, and labor. Since then, inflation has gradually decreased, providing relief for businesses across sectors. Inflation continues to ease as the annual inflation rate slowed for a fifth consecutive month to 2.5% in August 2024, the lowest since February 2021. This has led to lower costs associated with these essential elements of vertical farming, improving margins. Additionally, lower energy costs due to reduced inflation can make hydroponic and vertical farming more financially sustainable, as these farms rely heavily on controlled environments.
Overall, food and farming companies are still grappling with the lingering effects of inflation, particularly elevated commodity prices, as the farm products sector has underperformed with a 7.0% YTD decline.
That said, the shift toward more “value-driven” consumer spending could boost demand for vertical farming produce. As consumers look for affordable, fresh, and local food sources, vertical farms can offer year-round, sustainably grown produce with minimal transportation costs, making it a competitive option in a price-sensitive market.
Vertical Farming & Hydroponic Market
Vertical farming involves growing crops on vertical surfaces instead of traditional horizontal fields. By using vertically stacked layers, farmers can produce more food in the same or even less space. Often, vertical farms are incorporated into structures like greenhouses or skyscrapers. Hydroponics, a soil-free method of growing plants using water and nutrients, is a highly efficient approach that uses less space and water than traditional farming. According to Markets and Markets, the global vertical farming market is projected to grow from $5.1 billion in 2023 to $15.3 billion by 2028, with a CAGR of 24.7%.
A new study from the U.S. Department of Agriculture (USDA) and Virginia Tech suggests that technologies like controlled environment agriculture and agrivoltaics may play a key role in the future of farming. Researchers highlight that these innovative approaches could boost yields, improve nutrition, enhance access to local foods, and provide better year-round availability of fresh produce compared to traditional large-scale outdoor farming.
Between 2009 and 2019, the number of controlled environment agriculture operations in the U.S. more than doubled to nearly 3,000, with crop production increasing by 56%, rising from 502 million pounds to 786 million pounds. By 2019, over 60% of tomatoes, cucumbers, and lettuce in controlled environments were grown using hydroponics.
As of 2021, most of the approximately 300 agrivoltaics sites were solar farms with pollinator-friendly vegetation. Around 35 of these sites combined solar panels with vegetation grazed by sheep, while few included specialty crops like blueberries.
Challenges in Vertical Farming
Vertical farming faces challenges like high energy costs and labor expenses, leading to the failure of many ventures. However, advancements in technology have begun to address these issues, making vertical farms more viable. A prime example is Bowery Farming, founded in 2015 by Irving Fain in New York. Bowery produces a variety of fruits and vegetables in smart indoor farms located within 200 miles of major cities, using technology to automate and optimize the entire value chain.
As such, we have compiled a list of some of the best vertical farming and hydroponic stocks to buy today since they may well skyrocket sometime in the near future.
Methodology
For this list, we scanned Insider Monkey’s Q2 2024 database and selected companies involved in the Vertical Farming and Hydroponic industry, focusing on areas relevant to sustainable agriculture and innovative farming technologies. We picked seven companies with strong balance sheets and solid financials and ranked them in ascending order of hedge funds having stakes in them. For stocks with the equal number of hedge fund holders, we used their upside as the tiebreaker.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A farmer placing an accessory into a hydroponic system, filled with a nutrient-rich growing media.
GrowGeneration Corp. (NASDAQ:GRWG)
Number of Hedge Fund Holders: 6
GrowGeneration Corp. (NASDAQ:GRWG) is a leading developer, marketer, retailer, and distributor of products for both indoor and outdoor hydroponic and organic gardening, along with customized storage solutions. The company offers a wide range of products, including nutrients, additives, growing media, lighting, and environmental control systems. Founded in Colorado in 2014, the company has grown into the largest chain of specialty hydroponic and organic garden centers in the U.S.
In Q2 2024, GrowGeneration Corp. (NASDAQ:GRWG) reported net revenue of $53.5 million, up 11.8% sequentially but down 16.3% YoY due to store closures. Same-store sales dipped 6.2%, driven by weaker e-commerce and retail volumes. However, proprietary brand sales were a highlight, contributing 21.5% to total sales, up from 16.7% last year, fueled by strong demand for Drip Hydro and Charcoir products.
Gross margins improved to 27%, reflecting better operational efficiency, though pricing pressure and higher freight costs limited the gains. The company posted a net loss of $5.9 million, primarily due to restructuring expenses related to store closures and reduced sales in the Storage Solutions segment.
Liquidity remained strong for GrowGeneration Corp. (NASDAQ:GRWG), with $56 million in cash supporting a $4.2 million stock repurchase program. Looking forward, the company is optimistic about its restructuring efforts, aiming for sustainable revenue growth and profitability by expanding its proprietary brand portfolio and digital sales platform.
In July 2024, the company announced the planned closure of an additional 12 redundant or underperforming stores in the second half of 2024 as part of a strategic restructuring plan, following which the company would have a total of 31 retail stores operating in its portfolio.
The stock surged by nearly 6% in the past month, possibly driven by insider confidence, as the company director’s purchase of shares signaled optimism about prospects. However, a 17% YTD decline is largely due to restructuring costs from store closures and operational adjustments.
As of Q2 2024, six hedge funds, holding a combined investment of $3.1 million, are bullish on the stock, according to Insider Monkey’s database. Thus, GRWG makes it to our list of the best agriculture stocks to buy now.
Overall GRWG ranks 3rd on our list of the best vertical farming and hydroponic stocks to buy. While we acknowledge the potential of GRWG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GRWG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.