Is now a good time to pick up shares of Hydrofarm Holdings?

Hydrofarm Holdings (HYFM) has seen its shares plummet in price over the past month amid investor concerns over disappointing first quarter results. As HYFM still faces multiple near-term headwinds, the question is, is it worth betting on the stock now? Read on, let’s find out. – StockNews

Hydrofarm Holdings Group Inc. †HYFM) in Petaluma, California, is a prominent distributor and manufacturer of controlled environment agricultural equipment and supplies, including high-intensity grow lights, temperature control systems, growing equipment and a wide variety of original and creative branded items.

The stock is down 87.8% in price over the past year and 75.4% so far to close out yesterday’s trading session at $6.95. In addition, the stock is currently trading 89.1% below its 52-week high of $63.49, which they reached on June 1, 2021.

Recently, investment analysts at Stifel Nicolaus has downgraded the stock’s rating to “love” to “buy” and lowered their price target from $13.00 to $8.00.

Here’s what could affect HYFM’s performance in the near term:

Inadequate financial data

HYFM’s net sales decreased slightly year-over-year to $111.38 million for the first quarter ended March 31, 2022. Operating loss was $26.39 million, compared to $6.38 million in operating income in the quarter of last year. The company reported a net loss of $23.29 million versus net income of $4.94 million in the first quarter of 2021. Loss per share was $0.52 for the period.

Poor profitability

HYFM’s 20.6% Backlog-12 Months gross profit margin is 29.7% lower than the industry average of 29.3%. Cash from operating activities for the past 12 months was $52.58 million negative, compared to the industry average of $178.40 million. Also, the last 12 months ROA, Net Income Margin and ROC are negative, 1.68%, 3.1% and 0.79% respectively.

POWR ratings reflect bleak outlook

HYFM has an overall F rating, which equates to strong sales in our proprietary POWR ratings system. The POWR ratings are calculated by considering 118 different factors, weighting each factor optimally.

Our proprietary rating system also evaluates each stock based on eight different categories. HYFM has a D-rating for quality, which is justified given the company’s poor profitability.

Out of 78 stocks in the B rating Industrial machines industry, HYFM is at number 76.

In addition to what I’ve mentioned above, you can check out HYFM ratings for growth, value, momentum, and sentiment here

Click here to view our industry sector report for 2022

Bottom Line

HYFM’s declining sales and deteriorating operating results have increased investor concerns about the outlook. Analysts also expect earnings per share to fall 50% in the current quarter (ending June 30, 2022) and 39% in the current year. In addition, the stock is currently trading below the 50-day and 200-day moving averages of USD 12.05 and USD 27.74, respectively, indicating a downward trend. So we think the stock is best avoided right now.

How does Hydrofarm Holdings Group Inc. (HYFM) to its competitors?

While HYFM has an overall F rating, one might consider its industry peers, Amada Company Ltd. (AMDLY), Donaldson Company Inc. †DCI), and Thermon Group Holdings Inc. †THR), which have an overall A (Strong Buy) rating.

HYFM shares were unchanged in premarket trading Friday. Year-to-date, HYFM is down -75.43%, compared to a -17.75% rise in the benchmark S&P 500 index over the same period.

About the author: Pragya Pandey

Pragya is a research analyst and financial journalist with a passion for investing. In college she studied finance and is currently pursuing the CFA program and is a level II candidate.


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