AeroGrow International, Inc. (OTCMKTS:AERO) is ready to stage a turn around after posting record quarterly EBITDA. The stock is beginning to show signs of life as the stock price advances and showing a powerful, bullish reverse head and shoulder pattern (see chart at end of article). The stock has been in decline for the last two years after peaking around $11 and currently trading around $1.40 area. AERO decline began with disappointing investors with its results and poor year of year comparable for earnings and revenue.
The company posted earnings per share for the fourth quarter of $0.24. Given that the fourth quarter is typically the best seasonality due to the holidays, a good comparison is the prior year’s fourth quarter and full year results. EPS grew 71% for fourth quarter compared to same period prior year. If the company can post EPS for FY 2016 of $0.4 which shouldn’t be out of the question given the below (new channels, reduce expense, new product line, higher ASP, etc), the stock should trade around a 15 P/E ratio especially if AERO continues to beat estimates and prior year results. $0.40 x 12 gives a target share price of $6.00…more than triple its current levels.
On a fundamental basis, AERO saw an increase of revenues for full year 2015 of 8.3%. It posted annual revenues of $11.9 million. It hit a record quarterly EBITDA posting $1.7 million. Gross margin surged 7.2% to 37.7% up from 30.5% the year prior. Its Amazon channel revenues was up 100% year-over-year and showed strength at Costco and other on-line retailers. The direct-to-consumer model is gaining strength and traction and posting solid growth.
AERO has focused on three strategies. First is reducing supply chain costs which it was successfully able to do. Second, was the ability to increase its average selling price (ASP) through its product revisions. Lastly, it focused on channels like retail and direct-to-consumer to increase margins. AERO successfully achieved a broad advertising campaign featuring a series of new commercials for use on TV and in digital media.
AERO introduced a new product line that grow better, more efficient, and take up less footprint. The new innovative products can be used on kitchen countertops. AERO has been working on developing this line for numerous years and appears to be paying off. 46% of total revenues were driven by these new gardens.
AERO has been conducting tests with retail houseware channel at Bed, Bath, and Beyond amongst others. The customers and demographics that shop at these retailers are highly aligned with the AERO’s target market. This will benefit in sell-through and help drive revenues. In addition, AERO announced that it has begun selling internationally through Amazon.
AERO bottomed out at $0.86 and has been advancing steadily on light volume. Daily average volume has been a measly 10,000 shares trading hands. This stock has a share low float, meaning that an advance will be powerful and quick because there are not many shares available for trading. This will cause the price to rise quickly on any positive news (or less negative news).
AERO is close to breaching its 200 day moving average and has broken above its 50 day moving averages already. Another bullish indicator is the fact that the 50 day moving average line has developed a rounded bowl shape and now has an increasing slope. This bodes well for the share price and investors.
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AERO is currently trading at a $11 million market valuation. AERO has a huge, successful product line with great reviews on Amazon (just check it out yourself). The stock is making advances and year-of-year comparable will be much easier for the company given its depressed sales last year and the year prior. Its new channels should accelerate revenue growth. AERO is a small, microcap company poised to see triple digits gains.
We will be updating on AERO when more details emerge so make sure you are subscribed to Microcapspot so you know what’s going on with AERO.
Disclosure: we hold no position in AERO either long or short and we have not been compensated for this article.
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