בס״ד

Sell! Or Get Off the Pot! (GRWG)

Posted on December 28, 2020

It’s marijuana time at A Jew and His Money.

Never thought we’d see the day, but apparently there’s a first for everything.

That’s right, paranoia-inducing depressives are now legal, so let’s take a closer look at one purveyor of THC equipment and paraphernalia (no, Rudy, no bongs here), and set up a high life winner of a trade.

 

The outfit is called GrowGeneration (NASDAQ:GRWG), and it offers retail access to hydroponic and aquaponic equipment, lighting technologies, seeds, soils and other related items to enhance your trip.

All Baked In…

As we see it, GRWG’s price has gotten a bit ahead of itself, and the stock looks due for munchie run.

Consider the following spliffy fundamentals –

  • P/E is a lively 699.8,
  • Price to Book is 17.65x, and
  • There’s no yield on offer.
  • At the same time, insiders spent the last six months offloading 45.7% of their stake, to the tune of just under $50 million.

Roach clip lip pinch!

As for the technical picture, it’s equally fried.

This is six months’ worth of daily smoke –

The tokeaway’s like this –

  1. RSI is coming off an overbought signal struck in late November (in green).
  2. Since then we’ve seen both RSI and MACD diverging lower against price.  That’s bad news, as it signals a loss of buying momentum.
  3. About time, too – after a better than 1500% gain inside a year, we have a bearish engulfing pattern showing up this last Thursday (in black),
  4. While price has levitated extraordinarily above her salient moving averages.
  5. A simple Fibonacci retracement would bring the stock lower to either $27.66 or $18.10.

Now take a drag of this!

The weekly chart, too, offers little comfort for the GRWG party crowd.

Consider especially the intensely overbought action of the last month, as seen on the weekly RSI gauge (in green) –

  • With RSI smoking above the 80 line repeatedly in just the last month (in green), we’ve seen quite enough.  Weekly and daily RSI overbought indications (together) are a buzz-killer.
  • MACD is also poised for a roll,
  • While volume over the last quarter (in black) may point to simple excitement – or a distribution of shares.

Insiders were certainly unloading theirs over that period.

And now it’s our turn.

A Jew and His Money recommends you buy the GRWG April 16th 50/35 PUT spread for $9.50 (14.50/5.00).

Rationale: with the stock expected to pull back in coming months, the PUT spread offers an economical means of partaking in the decline.

And while $9.50 may seem an expensive outlay, consider, too, that with the stock now trading at $41.29, the long 50 PUT is already $8.71 in-the-money.  So, you’re really only paying $0.79 for four months’ time value – a solid proposition, however you slice it.

That puts the maximum gain on the trade at $5.50.

Maximum loss on the trade is the initial expenditure of $9.50 – should the stock close above 50 at expiry.

Breakeven falls at $40.50.

With kind regards,

Hugh L. O’Haynew

 

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