Scotts Miracle Grow has fallen from $180/ share to $54.03 today. Now paying a 4.9% divi with a market cap under $3.0B.
Morningstar upgraded to 5 stars last month when it was at $80/share. Morningstar puts a fair value at 120.
No position, just thought I’d share to invite further analysis.
And the July 23 $55 puts are over $10.
Just saying
Jk
Still trying to learn options trading. So if I sell July 23 $55 puts I collect $10.30? If the put is exercised next July I would be buying at $45 net cost?
On a very cursory look, management forecast another boom summer but got a bust, they posted a loss of $8 /share this quarter, they’re buried in inventory they can’t shift, demand from the cannabis gold rush has dried up, input prices have risen, they spent most of the cash that was on the books, and they won’t make it back in fall and winter. Sound about right?
None of which is to say it’s a bad business, but how do you start to take a stab at what they’ll earn in, say, the next five years? They did about $2-2.50 /share in annual EPS from 2006-2015. After that, higher but very lumpy. What’s a reasonable average EPS going forward? $7/share with one bad year in five? That business might be worth $60 /share, assuming it doesn’t blow up, but I don’t think I want to pay more than $40 for it.
Yes that is about right. You have also explained the risk factors. Risk is higher than average,fertilizer is cyclical in nature I believe. A lower priced Put might afford a lower entry price of assigned.
Jk
And the July 23 $55 puts are over $10.
…
Still trying to learn options trading. So if I sell July 23 $55 puts I collect $10.30? If the put is exercised next July I would be buying at $45 net cost?
It’s probably best to start with a firm that you’re much more certain will be worth more in a couple/few years.
When writing a put, there are two possible outcomes. One is that you bought some shares.
You have to be very happy with both outcomes, preferably equally happy.
That’s important to remember, because sure as shootin’, you’ll get whichever outcome looks worst at the moment of expiry.
Random suggestion—
Given the billions that Mr Buffett has been ploughing into them recently (they already own over 20% of the firm), puts on OXY might be a safer starting point.
Some quite attractive returns on offer if they expire, and net entry prices lower than Berkshire’s if they are assigned.
I’m not doing this particular one only because I always lose my shirt when investing in oil and gas.
I figured I might as well stop doing it…I can make money elsewhere just fine!
Jim
Scotts Miracle Grow has fallen from $180/ share to $54.03 today. Now paying a 4.9% divi with a market cap under $3.0B.
…
hey posted a loss of $8 /share this quarter, they’re buried in inventory they can’t shift, demand from the cannabis gold rush has dried up, input prices have risen, they spent most of the cash that was on the books, and they won’t make it back in fall and winter. Sound about right?
None of which is to say it’s a bad business, but how do you start to take a stab at what they’ll earn in, say, the next five years? They did about $2-2.50 /share in annual EPS from 2006-2015. After that, higher but very lumpy. What’s a reasonable average EPS going forward? $7/share with one bad year in five?
Great points. I think the ‘cannabis gold rush’ idea explains the odd share price spike up to $180, and it would be dangerous to assume that the current $54 price is a bargain just because the price is down 70%. SMG was a common component of stock portfolios that aimed to capitalize on the coming cannabis payday that has never materialized, and there are still dreams about this - witness Whitney Tilson, a usually sensible investor who still thinks cannabis could be a huge deal, despite the huge nothing sandwich that it has turned out to be on the Canadian side of the border.
dtb