Shares of Scotts Miracle-Gro (NYSE: SMG) plummeted 15.6% in January, according to data from S&P Global Market Intelligence. The stock of the lawn- and garden-care company, which is now a player in the marijuana space, is down 16.5% in 2018 through Feb. 13. It's returned a negative-1.2% for the one-year period through the same date.
For some context, the S&P 500 returned 5.7% in January, is essentially flat for 2018, and has returned 17.3% over the past year, through Feb. 13.
Scotts Miracle-Gro stock's poor performance in January was due to the company's release of its first-quarter results on Jan. 30. Results fell short of Wall Street's expectations and reflected a slowdown in the company's subsidiary that sells to the cannabis industry. Following the release, shares plunged to a closing loss of 14.2% that day.
For the quarter, Scotts reported a year-over-year revenue increase of 7%, a loss from continuing operations of $0.35 per share on a GAAP basis, and a loss of $1.08 per share on an adjusted basis, as my colleague Jason Hall noted at the time. A loss was expected, as the seasonal nature of the company's business means that it nearly always reports a loss in the first quarter. The culprit was the size of the adjusted loss, which was considerably larger than the $0.92 loss-per-share Wall Street was expecting.
Moreover, investors were no doubt concerned about a slowdown in the company's Hawthorne Gardening Co. subsidiary, which has been driving Scott's growth in recent years due to its focus on the fast-growing marijuana industry. Hawthorne posted a year-over-year revenue increase of 20%, but this was entirely due to acquisitions, as organic growth was flat.
When Scotts Miracle-Gro reports its quarterly results, investors should remain focused on Hawthorne's results. While a temporary slowdown in organic growth shouldn't be reason for concern, a more protracted slowdown would be worrisome as it could indicate that investors might not be able to count on Hawthorne driving future growth.
10 stocks we like better than Scotts Miracle-GroWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Scotts Miracle-Gro wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of February 5, 2018