Hydrofarm Holdings Group Inc. (HYFM) in  Petaluma, Calif., is a prominent distributor and producer of controlled environment agriculture equipment and supplies, which include high-intensity grow lights, temperature control systems, growth material, and a diverse range of original and creative branded goods.

The stock is down 87.8% in price over the past year and 75.4% year-to-date to close yesterday’s trading session at $6.95. In addition, its shares are currently trading 89.1% below their 52-week high of $63.49, which they hit on June 01, 2021.

Recently, investment analysts at Stifel Nicolaus downgraded the stock’s rating to “hold” from “buy” and reduced their price objective to $8.00 from $13.00.

Here is what could shape HYFM’s performance in the near term:

Inadequate Financials

HYFM’s net sales declined slightly year-over-year to $111.38 million for the first quarter ended March 31, 2022. Its operating loss came in at $26.39 million compared to $6.38 million in operating income in the prior-year quarter. The company reported a $23.29 million net loss versus net income of $4.94 million in the first quarter of 2021. Its loss per share amounted to $0.52 over this period.

Poor Profitability

HYFM’s 20,6% trailing-12-months gross profit margin is 29.7% lower than the 29.3% industry average. Its trailing-12-months cash from operations stood at negative $52.58 million compared to the $178.40 million industry average. Also, its trailing-12-months ROA, net income margin, and ROC are negative 1.68%, 3.1%, and 0.79%, respectively.

POWR Ratings Reflect Bleak Outlook

HYFM has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. HYFM has a D grade for Quality, which is justified given the company’s poor profitability.

Among the 78 stocks in the B-rated Industrial – Machinery industry, HYFM is ranked #76.

Beyond what I have stated above, you can view HYFM ratings for Growth, Value, Momentum, and Sentiment here.

Click here to check out our Industrial Sector Report for 2022

Bottom Line

HYFM’s declining sales and deteriorating bottom-line performance have raised investors’ concerns about its prospects. Also, analysts expect its EPS to decline 50% in the current quarter (ending June 30, 2022) and 39% in the current year. In addition, the stock is currently trading below its 50-day and 200-day moving average of $12.05 and $27.74, respectively, indicating a downtrend. So, we think the stock is best avoided now.

How Does Hydrofarm Holdings Group Inc. (HYFM) Stack Up Against its Peers?

While HYFM has an overall F rating, one might want to consider its industry peers, Amada Company Ltd. (AMDLY), Donaldson Company Inc. (DCI), and Thermon Group Holdings Inc. (THR), which have an overall A (Strong Buy) rating.

HYFM shares were unchanged in premarket trading Friday. Year-to-date, HYFM has declined -75.43%, versus a -17.75% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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