Markets

Why GrowGeneration Stock Jumped Today

What happened

Shares of GrowGeneration (NASDAQ: GRWG) were jumping 9.6% higher as of 3:41 p.m. EDT on Friday, with the stock rising as much as 15.4% earlier in the day. The big gain came after Oppenheimer analyst Brian Nagel increased his price target for the stock to $25 from $15.

So what

Friday's move marked the second day in a row of solid gains for the picks-and-shovels cannabis stock. GrowGeneration's shares rose nearly 8% on Thursday with Stifel analyst Andrew Carter issuing a buy rating with a price target of $22.

Cannabis plants growing with indoor lighting

Image source: Getty Images.

While analysts' price targets don't always prove to be accurate, it's nonetheless important to understand the reasoning behind their optimism. Nagel thinks the long-term outlook for the hydroponic and organic gardening supplies market presents a significant opportunity for GrowGeneration.

That aligns well with the take expressed by Carter. He thinks that four U.S. states and potentially more will legalize recreational marijuana, opening up an even greater market for GrowGeneration as the largest specialty hydroponic and organic gardening retailer in the country.

Now what

GrowGeneration stock now trades at nearly 118 times expected earnings. The company will need to continue generating tremendous earnings growth to satisfy investors. That hasn't been a problem so far this year: GrowGeneration posted a 136% year-over-year earnings increase for the second quarter. 

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends GrowGeneration. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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