On Wednesday after the closing bell, Stifel Initiated coverage on shares of GrowGeneration (GRWG) with a Buy rating and Price Target of $22 based on 25x EV/FY22E EBITDA.

Stifel sees the company as a leader in the hydroponics industry and estimates FY22 sales of $362 million, suggesting a 54% revenue CAGR (Compound Aggregate Growth Rate) from the $124 million achieved over the past 12 months. GrowGeneration’s main aim is to service any size grow in order to lower costs, maximize yield, and provide facility or project consultations.

Some key points from the analyst note acknowledge GrowGeneration being the largest specialty hydroponics retailer, and the potential the company has to disrupt the cannabis market. Stifel believes the well-positioned GRWG has demonstrated success, free cash flow generation, and the resources for continued reinvestment.

Many of the current players in the market include popular names like Canopy Growth Corporation (CGC) and Cronos Group (CRON) which have struggled so far, despite the backing of big names like Constellation Brands and Altria respectively. Black market sales and continued oversight have slowed sales growth for these companies. So will GRWG succeed?

Stifel analysts shared, “Our outlook suggests at least four states will legalize and introduce new adult-use cannabis systems expanding the addressable market by 50% over the next two years. We believe any U.S. federal cannabis reform will be difficult to achieve considering the jobs and tax revenue supported by the current $14 billion industry suggesting the state-by-state system will likely endure.”

GRWG announced record second quarter revenue results of $43.5 million, with adjusted EBITDA of $4.6 Million and net income of $2.6 Million when they reported a few weeks ago on August 13th. Additionally, the company guided for FY2021 revenue of between $245M-$260M.

GrowGeneration shares were up over 7% at the time of this publication.

Disclosure: At the time of publication, I have no positions in GrowGeneration (GRWG) or Canopy Growth (CGC). I currently hold a long position in Cronos Group. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article.