GrowLife Inc. (OTCQB: PHOT), a provider of highly effective indoor growing technologies and unique lifestyle brands, was recently featured in a third-party research report written by Grass Roots Research and Distribution. In the research report, lead analyst Paul Cohen cited multiple near-term catalysts and issued a $0.22 per share 1-year price target on the stock.
“Mr. Cohen and his firm have a reputation for being extremely thorough and for fully supporting any investment thesis that is offered,” said GrowLife Inc. CEO Sterling Scott after hiring the micro-cap research firm earlier this month. “We were impressed by his deep understanding of the mercurial marijuana industry from both a regulatory and economic vantage.”
In this article, we’ll take a look at Mr. Cohen’s research report in greater detail and identify key catalysts that traders and investors should consider.
Strong Top- & Bottom-line Growth
GrowLife reported first quarter revenues that increased 725% year-over-year to $760,709 and gross margins that increased to 32.7% boosting the bottom-line. Mr. Cohen believes that these impressive financial results will continue over the next five years, with revenues growing from approximately $5.4 million in 2013 to $77.1 million by 2019 – a 70% top-line CAGR.
On the bottom-line, Mr. Cohen predicts earnings per share will grow from a net loss in 2013 and 2014 to $0.01 per share by 2016 and $0.03 per share by 2019. The company’s operating cash flow is expected to similarly expand from a cash burn in 2013 and 2014 to positive cash flows of approximately $12.6 million by 2019, with $9 million in free cash flow in that period.
These growth rates also set the company apart from many of its competitors, including Medical Marijuana Inc. (OTCQB: MJNA) and HEMP Inc. (OTCQB: HEMP). While these and other competitors are involved in the marijuana industry, the analyst notes that they haven’t generated sustainable revenues or demonstrated a path towards profitability.
Dramatically Undervalued Price
GrowLife’s projected revenues and earnings suggest that its stock may be significantly undervalued in today’s dollars. Mr. Cohen’s research report used four different methodologies to compute its $0.22 per share price target, which reflects a significant 456.2% discount to the $0.04 per share price when the research report was first issued.
On a price-earnings basis, Mr. Cohen estimated that the industry’s forward price-earnings ratio would reach 41.35x by 2016 with GrowLife’s EPS reaching $0.01 per share. Applying a 0.72x discount factor therefore leads to a $0.21 per share valuation using a peer multiple valuation method, which is further supported by a $0.29 per share discounted cash flow valuation.
The other two valuation methods – price-to-capital employed and a performance index valuation – yielded valuations of $0.32 per share and $0.07 per share that were also factored into the $0.22 per share price target that was issued in the end.
Takeaway for Investors
The Grass Roots Research and Distribution report by Paul Cohen provides the most comprehensive account of GrowLife’s business to date. In addition to the financial considerations discussed above, the research report goes into great detail about the marijuana business and why it’s an industry that investors would be ill-advised to ignore.
For more information please visit:
http://growlifeinc.com/
Disclosure: The subject security is a client of Emerging Growth, LLC. For full financial disclosures for all Emerging Growth, LLC clients, please visit
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