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Scotts Miracle-Gro Co (NYSE:SMG) A Bear Case Theory

We came across a bearish thesis on Scotts Miracle-Gro Co (SMG) on ValueInvestorsClub by jet551. In this article, we will summarize the bears’ thesis on SMG. Scotts Miracle-Gro Co shares were trading at $74.06 when this thesis was published, vs. closing price of $70.98 on Aug 30.

Scotts Miracle-Gro is a major player in the consumer lawn and garden industry, known for its flagship brands like Scotts, Miracle-Gro, Ortho, and Roundup. The company has a strong presence in the U.S., where its consumer segment accounts for 80% of its revenue. SMG’s products are widely distributed through key retailers, including Home Depot and Lowe’s, which collectively represent 43% of its sales. The business is highly seasonal, with the majority of its revenue generated in the spring and summer months. SMG also ventured into the cannabis industry through its Hawthorne hydroponics subsidiary, which now constitutes about 12% of its sales. However, this diversification has introduced significant challenges.

See Also 33 Most Important AI Companies You Should Pay Attention To

The core U.S. consumer business, which has been the backbone of SMG’s success, is now facing serious headwinds. Over the past three years, the company has experienced declining revenue in this segment due to shrinking volumes. To achieve its ambitious 2024 growth targets, SMG is banking on a 10% volume growth, which seems increasingly unrealistic given current market conditions. The company is also under pressure from retailers to reduce prices, further straining its margins. Additionally, SMG’s attempts to expand into organic products have not resonated with consumers, and its competition is gaining ground in the more popular gardening and organic segments. This shift in consumer preferences, particularly among younger generations who are less interested in traditional lawn care, poses a long-term challenge to SMG’s growth.

The company’s foray into the cannabis market through Hawthorne has been a costly misstep. SMG invested heavily in this segment, spending around $1.5 billion on acquisitions. However, the anticipated demand from cannabis legalization did not materialize, leading to significant losses. In 2023, Hawthorne’s revenue fell dramatically, and the business reported a $50 million loss. Despite restructuring efforts, the outlook for Hawthorne remains bleak, with continued cash burn expected. Shutting down Hawthorne could improve SMG’s EBITDA, but this would be a significant blow to the CEO, who has familial ties to the subsidiary.

Compounding these operational issues is SMG’s over-levered balance sheet. The company’s net debt has ballooned to approximately seven times its EBITDA, severely limiting its operational flexibility. SMG has been forced to undertake significant cost-cutting measures, including mass layoffs and the closure of distribution facilities, to manage its debt. These actions have led to a loss of talent and have hindered the company’s ability to innovate, which is crucial given the shifting market dynamics.

Despite the challenges, SMG has set aggressive targets for 2024, including high single-digit revenue growth and a significant improvement in EBITDA. However, these targets appear overly optimistic given the company’s current struggles. The company’s reliance on one-time measures to boost cash flow, such as selling receivables and compensating employees with stock, raises concerns about its financial health.

Given the operational challenges, over-levered balance sheet, and unrealistic growth targets, SMG’s stock appears overvalued at its current levels. As these issues become more apparent, a significant downside in the stock price is likely, making it a strong candidate for selling.

SMG is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 28 hedge fund portfolios held SMG at the end of the second quarter which was 29 in the previous quarter. While we acknowledge the potential of SMG as an investment, our conviction lies in the belief that 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 as promising as SMG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America.

Disclosure: None. This article is originally published at Insider Monkey.

AI, Tariffs, Nuclear Power: One Undervalued Stock Connects ALL the Dots (Before It Explodes!)

Artificial intelligence is the greatest investment opportunity of our lifetime. The time to invest in groundbreaking AI is now, and this stock is a steal!

AI is eating the world—and the machines behind it are ravenous.

Each ChatGPT query, each model update, each robotic breakthrough consumes massive amounts of energy. In fact, AI is already pushing global power grids to the brink.

Wall Street is pouring hundreds of billions into artificial intelligence—training smarter chatbots, automating industries, and building the digital future. But there’s one urgent question few are asking:

Where will all of that energy come from?

AI is the most electricity-hungry technology ever invented. Each data center powering large language models like ChatGPT consumes as much energy as a small city. And it’s about to get worse.

Even Sam Altman, the founder of OpenAI, issued a stark warning:

“The future of AI depends on an energy breakthrough.”

Elon Musk was even more blunt:

“AI will run out of electricity by next year.”

As the world chases faster, smarter machines, a hidden crisis is emerging behind the scenes. Power grids are strained. Electricity prices are rising. Utilities are scrambling to expand capacity.

And that’s where the real opportunity lies…

One little-known company—almost entirely overlooked by most AI investors—could be the ultimate backdoor play. It’s not a chipmaker. It’s not a cloud platform. But it might be the most important AI stock in the US owns critical energy infrastructure assets positioned to feed the coming AI energy spike.

As demand from AI data centers explodes, this company is gearing up to profit from the most valuable commodity in the digital age: electricity.

The “Toll Booth” Operator of the AI Energy Boom

  • It owns critical nuclear energy infrastructure assets, positioning it at the heart of America’s next-generation power strategy.
  • It’s one of the only global companies capable of executing large-scale, complex EPC (engineering, procurement, and construction) projects across oil, gas, renewable fuels, and industrial infrastructure.
  • It plays a pivotal role in U.S. LNG exportation—a sector about to explode under President Trump’s renewed “America First” energy doctrine.

Trump has made it clear: Europe and U.S. allies must buy American LNG.

And our company sits in the toll booth—collecting fees on every drop exported.

But that’s not all…

As Trump’s proposed tariffs push American manufacturers to bring their operations back home, this company will be first in line to rebuild, retrofit, and reengineer those facilities.

AI. Energy. Tariffs. Onshoring. This One Company Ties It All Together.

While the world is distracted by flashy AI tickers, a few smart investors are quietly scooping up shares of the one company powering it all from behind the scenes.

AI needs energy. Energy needs infrastructure.

And infrastructure needs a builder with experience, scale, and execution.

This company has its finger in every pie—and Wall Street is just starting to notice.

Wall Street is noticing this company also because it is quietly riding all of these tailwinds—without the sky-high valuation.

While most energy and utility firms are buried under mountains of debt and coughing up hefty interest payments just to appease bondholders…

This company is completely debt-free.

In fact, it’s sitting on a war chest of cash—equal to nearly one-third of its entire market cap.

It also owns a huge equity stake in another red-hot AI play, giving investors indirect exposure to multiple AI growth engines without paying a premium.

And here’s what the smart money has started whispering…

The Hedge Fund Secret That’s Starting to Leak Out

This stock is so off-the-radar, so absurdly undervalued, that some of the most secretive hedge fund managers in the world have begun pitching it at closed-door investment summits.

They’re sharing it quietly, away from the cameras, to rooms full of ultra-wealthy clients.

Why? Because excluding cash and investments, this company is trading at less than 7 times earnings.

And that’s for a business tied to:

  • The AI infrastructure supercycle
  • The onshoring boom driven by Trump-era tariffs
  • A surge in U.S. LNG exports
  • And a unique footprint in nuclear energy—the future of clean, reliable power

You simply won’t find another AI and energy stock this cheap… with this much upside.

This isn’t a hype stock. It’s not riding on hope.

It’s delivering real cash flows, owns critical infrastructure, and holds stakes in other major growth stories.

This is your chance to get in before the rockets take off!

Disruption is the New Name of the Game: Let’s face it, complacency breeds stagnation.

AI is the ultimate disruptor, and it’s shaking the foundations of traditional industries.

The companies that embrace AI will thrive, while the dinosaurs clinging to outdated methods will be left in the dust.

As an investor, you want to be on the side of the winners, and AI is the winning ticket.

The Talent Pool is Overflowing: The world’s brightest minds are flocking to AI.

From computer scientists to mathematicians, the next generation of innovators is pouring its energy into this field.

This influx of talent guarantees a constant stream of groundbreaking ideas and rapid advancements.

By investing in AI, you’re essentially backing the future.

The future is powered by artificial intelligence, and the time to invest is NOW.

Don’t be a spectator in this technological revolution.

Dive into the AI gold rush and watch your portfolio soar alongside the brightest minds of our generation.

This isn’t just about making money – it’s about being part of the future.

So, buckle up and get ready for the ride of your investment life!

Act Now and Unlock a Potential 100+% Return within 12 to 24 months.

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A New Dawn is Coming to U.S. Stocks

I work for one of the largest independent financial publishers in the world – representing over 1 million people in 148 countries.

We’re independently funding today’s broadcast to address something on the mind of every investor in America right now…

Should I put my money in Artificial Intelligence?

Here to answer that for us… and give away his No. 1 free AI recommendation… is 50-year Wall Street titan, Marc Chaikin.

Marc’s been a trader, stockbroker, and analyst. He was the head of the options department at a major brokerage firm and is a sought-after expert for CNBC, Fox Business, Barron’s, and Yahoo! Finance…

But what Marc’s most known for is his award-winning stock-rating system. Which determines whether a stock could shoot sky-high in the next three to six months… or come crashing down.

That’s why Marc’s work appears in every Bloomberg and Reuters terminal on the planet…

And is still used by hundreds of banks, hedge funds, and brokerages to track the billions of dollars flowing in and out of stocks each day.

He’s used this system to survive nine bear markets… create three new indices for the Nasdaq… and even predict the brutal bear market of 2022, 90 days in advance.

Click to continue reading…