- urban-gro went public in February 2021 and raised approximately $54 million in an IPO that priced at $10.00.
- The firm provides a range of EPC services to indoor farming agriculture companies in the U.S. and Europe.
- UGRO has grown impressively, but operating losses are worsening, and it faces increasing macroeconomic risks, which may slow project activity.
- I'm on Hold for UGRO in the near term, but the stock is worth placing on a watch list.
A Quick Take On urban-gro
urban-gro, Inc. ( UGRO ) went public in February 2021, raising approximately $54 million in gross proceeds in an IPO that priced at $10.00 per share.
The firm provides a suite of engineering, procurement and construction services primarily to the controlled environment agriculture [CEA] industry in the U.S. and Europe.
UGRO looks to be fairly valued at its current level given its worsening operating losses and uncertain economic risks ahead.
I'm on Hold for UGRO for the near term, though the stock is worth placing on a watch list.
UGRO Overview
Lafayette, Colorado-based urban-gro was founded to deliver engineering and design services to create high performance indoor cultivation facilities.
Management is headed by co-founder, Chairman and CEO Bradley Nattrass, who was previously Managing Member of enviro-glo, a commercial lighting products company.
The company's primary offerings include:
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Engineering
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Design
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Procurement
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Integration
The firm seeks clients in the commercial controlled environment agriculture [CEA] market, including cannabis growers.
UGRO says it has worked on hundreds of indoor CEA facilities in North America and has entered into several engagements in Europe.
UGRO's Market & Competition
According to a 2018 market research report by Grand View Research, the global market for vertical farming was an estimated $2.5 billion in 2018 and is expected to reach $9.7 billion by 2025.
This represents a forecast very high CAGR of 21.3% from 2019 to 2025.
The main drivers for this expected growth are a growing adoption by consumers of fruits and vegetables that are produced in an environmentally friendly manner as well as the strong growth of population in large urban centers.
Also, indoor farming can produce crops throughout the year, protecting crops from extreme weather.
North America also is producing ever greater quantities of cannabis products, which are a significant driver of demand potential for Agrify.
Below is a chart showing the historical and projected future growth rate of various aspects of the vertical farming market in Canada:
Major competitive or other industry participants include:
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Hydrofarm ( HYFM )
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Agrify ( AGFY )
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Various competitors in specific product categories
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Systems integrators and greenhouse operators
UGRO's Recent Financial Performance
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Total revenue by quarter has grown considerably in the past 5 quarters:
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Gross profit by quarter has followed roughly the same trajectory as that of total revenue:
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Selling, G&A expenses as a percentage of total revenue by quarter have trended higher as revenue has increased:
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Operating income by quarter has swung significantly into negative territory in recent quarters:
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Earnings per share (Diluted) have had only one positive quarterly result in the past 5 quarters:
In the past 12 months, UGRO's stock price has dropped 44.3 percent vs. the U.S. S&P 500 index' fall of around 10.3 percent, as the chart below indicates:
Valuation Metrics For UGRO
Below is a table of relevant capitalization and valuation figures for the company:
Measure | Amount |
Enterprise Value | $28,420,000 |
Market Capitalization | $54,780,000 |
Enterprise Value / Sales [TTM] | 0.40 |
Price / Sales [TTM] | 0.77 |
Revenue Growth Rate [TTM] | 111.63% |
Operating Cash Flow [TTM] | -$5,590,000 |
Earnings Per Share | -$0.02 |
(Source - Seeking Alpha)
As a reference, a relevant partial public comparable would be Hydrofarm Holdings ( HYFM ); shown below is a comparison of their primary valuation metrics:
Metric | Hydrofarm Holdings | urban-gro | Variance |
Enterprise Value / Sales [TTM] | 0.68 | 0.40 | -41.2% |
Price / Sales [TTM] | 0.32 | 0.77 | 140.6% |
Operating Cash Flow [TTM] | -$52,580,000 | -$5,590,000 | -89.4% |
Revenue Growth Rate | 24.0% | 111.6% | 365.5% |
(Source - Seeking Alpha)
A full comparison of the two companies' performance metrics may be viewed here .
Commentary On UGRO
In its last earnings call (Source - Seeking Alpha ), covering Q1 2022's results, management highlighted its record quarterly revenue mostly due to organic growth along with services revenue from its acquisition of the 2WR architect firm.
The company also closed its deal to acquire Emerald Construction Management, which it expects to be 'immediately accretive to earnings' while expanding its in-house offering to include construction management and design build service capabilities.
The goal of management appears to be to offer a full suite of services to the indoor controlled environment agriculture market via an EPC (Engineering, Procurement and Construction) approach which it hopes will diversify its offerings outside the cannabis market.
As to its financial results, while revenue and gross profit grew enviably during Q1, operating losses worsened significantly, which is punished in the current stock market environment.
For the balance sheet, the firm ended the quarter with cash of over $27 million, no debt and an order backlog of $22 million.
Looking ahead, management seeks to expand geographically, with its service offerings and within the food-focused vertical farming sector.
Regarding valuation, the market is valuing UGRO differently than partial comparable Hydrofarm, likely due in part to the difference in the two firms' growth rates.
The primary risk to the company's outlook is the broader macroeconomic environment which is worsening, with some observers believing the U.S. and Europe are already in a recession.
A slowdown or recession would likely delay project activity, slowing the firm's revenue growth path and complicating its desire to retain headcount if it means continued operating losses in a rising cost of capital environment.
If a recession or slowdown is shallow and inflation subsides, the stock could see an upside catalyst by the end of 2022.
UGRO looks to be fairly valued at its current level given its worsening operating losses and uncertain economic risks ahead.
I'm on Hold for UGRO for the near term, though the stock is worth placing on a watch list.
For further details see:
urban-gro Produces Growth, But Recession Reality May Slow Progress