Scotts Miracle-Gro Co. (SMG)

(23 December 2016)

SMG Business Summary

This company is a leading international supplier of products for the consumer lawn and garden, and professional turf and horticulture markets.

SAVE Fundamentals

  • Price to Earnings: 18.75
  • Earnings Per Share: $2.48
  • Market Cap: 5.8B
  • Current Ratio: 1.67
  • Return on Equity: 37.14%
  • Dividend Yield: 2.29%
  • Total Debt to Equity Ratio: 184.02

Balance Sheet ($ in Millions)

  • Total Assets increased $281.6.
  • Total Liabilities increased $180.4.
  • Total Stockholder Equity increased $101.2.

Income Statement ($ in Millions)

  • Total Net Sales increased $108.1.
  • Comprehensive Income increased by $166.6.
  • Net income increased by $156.1.
  • Goodwill has increased from $202.5 in Sept. ’14 to $213.7 in Sept. ’16.

Cash Flow Statement ($ in Millions)

  • Net Cash provided by operating activities decreased $9.5.
    • This is mainly due to an increase in SMG’s Accounts Payable.
  • Net Cash used in investing activities decreased $402.
  • Net Cash used in financing activities increased $401.1.
  • Cash and Cash Equivalents at end of period decreased $21.3.

Added Notes

  • SMG is a solid company not only from a growth perspective, but also from a value perspective. Trading at roughly 20x earnings, the growth of this stock’s price hasn’t blown up its valuation.
  • However, I remain cautious entering the stock at this time, given its closeness to the 52 week high.
  • Also, the stock is up 41.2% YTD, an impressive feat, but I am skeptical on how much milk is left to squeeze out of this cow.
  • I would rather enter my position in this stock around the $85-86 range, and anything lower I would buy in bulk.
  • SMG has a clear competitive economic moat around itself, has solid management, and is the leader in it’s industry.
  • One potential headwind I see is the amount of debt SMG has taken on in the most recent quarter. With increases in accounts payable and debt obligations, that could potentially push this stock down to my target purchase price if it has trouble paying / structuring it’s debt.
  • Another potential headwind for the marijuana business in general is Jeff Sessions, whom Trump appointed to his cabinet. Sessions is very anti – marijuana, so I would like to see what his plans are, and see how much weight he carries before investing more into a venture that could still be deemed illegal in the coming future.
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