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Sunday, October 25, 2020

Strategic Update on AeroGrow International, Inc. (OTCMKTS:AERO)

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AeroGrow International, Inc. (OTCMKTS:AERO) has been gradually wrestling with the concept of an effective take-out price over recent months. On Thursday, investors received word that The Scotts Miracle-Gro Company (SMG) announced “that SMG Growing Media, Inc., an indirect wholly-owned subsidiary, has exercised its current outstanding warrants to establish an 80 percent ownership stake in AeroGrow International, Inc. (AERO).”

That takes the SMG position up from approximately a 31 percent stake in AERO established a few years ago. It’s not that surprising that the company feels it’s time to further lock down the stake. It will be interesting to see how AERO shares process the move over time. The stock is certainly one of the better performers on the OTC over the past year, up well over 400% at recent range highs.

AeroGrow International, Inc. (OTCMKTS:AERO) trumpets itself as a company that engages in the development, marketing, direct-selling, and wholesale of indoor garden systems to consumers and retailers worldwide.

The company’s principal products include indoor gardens and proprietary seed pod kits that allow consumers to grow vegetables, such as tomatoes, chili peppers, and salad greens; fresh herbs, including cilantro, chives, basil, dill, oregano, and mint; and flowers, such as petunias, snapdragons, geraniums, and vinca.

It also offers grow lights and a patented nutrient formula, as well as various cooking, gardening, and décor accessories.

The company’s products are used in the gardening, cooking, healthy eating, and home and office décor markets. It also offers its products through direct-to-consumer sales channel, including Web sales and a direct mail catalog.

According to company materials, “Headquartered in Boulder, Colorado, AeroGrow International, Inc. is the leader in the rapidly growing indoor gardening market. AeroGardens allow anyone to grow farmer’s market fresh herbs, salad greens, tomatoes, chili peppers, flowers and more, indoors, year-round, so simply and easily that no green thumb is required. With an AeroGarden…you can grow anything! In April 2013, AeroGrow entered into a strategic partnership with Scotts Miracle-Gro to continue to expand the indoor gardening market.”

The company was founded in 2002 and is headquartered in Boulder, Colorado.

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As noted, SMG has been gradually moving into a controlling position in AERO. With the increased ownership position, according to the recent release, “three members of the ScottsMiracle-Gro team will now sit on the 5-member AeroGrow board, including Chris Hagedorn, general manager of The Hawthorne Gardening Company, who also will be chairman of the AeroGrow board. Michael Wolfe will remain in his capacity as president and CEO of AeroGrow.”

“Our investment and work with AeroGrow has benefited both companies, and we continue to see great potential for indoor gardening going forward,” said Jim Hagedorn, chairman and CEO of ScottsMiracle-Gro. “We’re pleased to maintain key members of the management team, excited by their pipeline of new products, and we look forward to even greater results going forward.”

Recent action has seen a decline of just under -20% in shares of the stock over the past week. However, AERO has a clear large strategic interest on the bid and a track record that includes a number of dramatic bounces. Moreover, the name has seen an influx in interest of late, with the stock’s recent average trading volume running a bit over 220% above its longer-run average levels. It pays to take note of this fact given the stock’s very limited trading float of just 5.3M shares. As savvy traders are well aware, a jump in average daily transaction volume in a stock with a restricted float can unleash fireworks as supply is squeezed.

Now commanding a market cap of $30M, AERO has a decent store ($399.00k) of cash on the books, with total assets just shy of $9.4M, which stands against an appreciable load ($2.92M) of total accumulated debt.

AERO is making real money, with trailing 12-month revenues coming in at 21.35M. In addition, the company is seeing major top line growth, with y/y quarterly revenues growing at 105.5%. While there may be some sell-the-news action off this catalyst, and some potential that SMG is simply going to sit on the offer and lock in something like a 60% profit on the warrants, the data and context are favorable enough that we would see that latter outcome as highly unlikely. We will update the story again soon as developments transpire. For continuing coverage on shares of $AERO stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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