We recently published a list of 7 Worst Vertical Farming and Hydroponic Stocks to Buy. In this article, we are going to take a look at where The Scotts Miracle-Gro Company (NYSE:SMG) stands against other worst vertical farming and hydroponic stocks to buy.
Vertical farming and hydroponics have proven to be revolutionary solutions in the agriculture sector, addressing food security, sustainability, and urbanization challenges. The global hydroponics market is expected to grow to $25.1 billion by 2027 from $12.1 billion in 2022, as per MarketsandMarkets. On the other hand, the vertical farming industry is forecasted to grow to $50.1 billion by 2032 from $6.92 billion in 2024, according to Fortune Business Insights. Hence, the sector has strong growth potential.
However, despite such positive forecasts, not all companies in the sector are poised for success. Several players are facing a downfall due to rising operational costs, scalability-related issues, and financial instability. These factors make some of the stocks in the sector riskier than others. One of the main factors affecting the industry is the high cost of setting up and maintaining vertical farms. High capital investment is required to support innovations like LED lighting, AI-driven automation, and climate-controlled systems. Although innovations like the CoolGrow VF LED light have enhanced energy efficiency by up to 38%, overall operational costs remain high. Moreover, farm input costs have climbed 44% since 2019, according to AHDB, with fertilizer, electricity, and machinery costs surging between 38% and 50%, decreasing profit margins. Such rising costs put pressure on companies to maintain profitability, especially where the industry struggles with tight margins.
Similarly, dependence on artificial lighting and climate control results in high energy consumption, increasing costs, and reducing profitability. Although technological advancements are being made to decrease costs, energy-intensive operations hit profit margins. Additionally, supply chain disruptions, especially after the COVID-19 pandemic, have added further complications. Labor-related shortages and transportation issues have put pressure on companies, making it difficult to scale operations efficiently. Many vertical farms rely on highly specialized components, and delays in sourcing critical equipment halt expansion efforts.
Furthermore, the hydroponics sector has also been facing regulatory uncertainty. Although cannabis legalization in several markets initially increased demand for hydroponic systems, inconsistent regulations and oversupply in the cannabis market have stunted growth. Many companies in the sector that heavily rely on cannabis cultivation have faced difficulties in pivoting to other revenue streams. On the other hand, although demand for vertical farming produce is increasing, it faces challenges due to higher price points compared to traditional agriculture. While sustainability is an attractive selling point, budget-sensitive consumers tend to go for cheaper options, resulting in a decrease in the market reach of vertically farmed produce.
Investor sentiment is shifting, with increasing doubts regarding capital-intensive agritech ventures. According to McKinsey & Company, annual investments worldwide in food and agribusiness have surpassed the $100 billion mark. However, hydroponic and vertical farming companies are still finding it difficult to secure funding. This has resulted in increased short interest in several underperforming stocks, with hedge funds betting against companies that do not demonstrate sustainable long-term business models. Companies that previously ensured high-margin growth have faced a decrease in revenue, adding to concerns regarding long-term viability.
Ultimately, the structural challenges of the industry, as well as economic pressures, have led to significant stock underperformance for multiple vertical farming and hydroponic companies.
Methodology
To come up with our list of the 7 Worst Vertical Farming and Hydroponic Stocks to Buy, we started by making use of Finviz screener to identify stocks from the agricultural inputs and farm products industries. We also looked into our previous articles on the sector to make sure relevant companies with substantial market capitalization are included.
Next, we looked into hedge fund interest in these companies, as we believe that stocks with significant institutional backing point toward financial stability. However, we focused on short interest, measured by the short percentage of float, reflecting investor skepticism and potential risks. A higher short interest points toward a company’s frail financial position, operational inefficiencies, or larger industry challenges. The companies were then ranked in ascending order based on their short percentage of float, with the most shorted stocks situated at the top of our list.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A farmer standing in a lush field of vegetables that has been enhanced by the company’s hydroponic products.
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, SMG ranks 1st on our list of 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 timeframe. 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.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
