Stock Pick: Scotts Miracle-Gro Company (SMG)

Hydroponic equipment

Scotts Miracle-Gro Company (SMG) is a multinational corporation that manufactures and sells gardening products such as consumer fertilizers, grass seed, pesticides, soils, and mulches. Some of its well-known brands include Miracle-Gro, RoundUp, Tomcat, and General Hydroponics. The company diversified and entered the marijuana industry by selling hydroponic equipment. In 2018, the company generated revenue of $2.663 billion while employing over 5,000 people.

Technical Analysis of Scotts Miracle-Gro Company (SMG)

By looking at the weekly and monthly charts you can easily identify the stock’s trend.

After posting an all-time high of $110.12 in January 2018, the stock went into a year-long bear winter. The correction drove the equity to as low as $57.96 in December 2018. At that point, SMG shed over 47% of its value from the all-time high.

Nevertheless, the stock was showing signs of bearish exhaustion. It was oversold on the weekly RSI, plus bulls managed to defend the monthly support of $58. With these signals, the market bounced hard. Now, it appears to have regained its bullish tone.

Technical analysis reveals that SMG has broken out of an inverse head-and-shoulders pattern when it took out resistance of $84. The breakout triggered a strong rally that catapulted the stock to as high as $98.93 on June 19, 2019. More importantly, the breakout signaled the resumption of the stock’s uptrend.

Currently, the security is still in the midst of a breakout rally but we’re not getting caught in the upswing. SMG is overheated on the weekly timeframe. Thus, it may be wise to wait for a pullback before buying shares.

Fundamental Analysis of Scotts Miracle-Gro Company (SMG)

In addition to our technical analysis, the fundamental analysis also supports our bullish view.

Suppliers like Scotts Miracle-Gro Company are benefitting from the overall bullish sentiment in the marijuana industry. According to the Fool, SMG built its hydroponic segment from virtually nothing to a $600 million per year business with over 1,800 retail clients.

On top of that, the company’s 2019 Q2 earnings report beat analyst estimates. SMG reported earnings per share (EPS) of $3.64, which is 22 cents higher than analyst forecast of $3.42. Revenue was also higher than the consensus estimate. The company reported a top line of $1.19 billion against the estimate of $1.16 billion.

With these developments, SMG reaffirmed its fiscal guidance for the rest of 2019. However, it also stated that the encouraging start for the year increases the odds that revenue growth could exceed original projections.

The strategy is to buy on dips as close to $84 as possible. As long as bulls protect this key price area, SMG will likely take out the all-time high of $110 and target $115.

The timeline for the target is six months.

Weekly SMG Chart

SMG Weekly chart
SMG Weekly chart

Monthly SMG Chart

SMG monthly chart
As of this writing, the Scotts Miracle-Gro Company (SMG) is trading at $98.17

Summary of Strategy

Buy: On dips as close to $84 as possible.
Target: $115
Stop: $80

 

Disclaimer: The writer does not own shares of Scotts Miracle-Gro Company (SMG).
Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.