Many stocks do better during certain periods of the year because of their business model.
Apple is an example of this because they release new iPhones in September, just ahead of the holiday shopping season. Scott's Miracle Grow is another example because the spring planting season is their most profitable quarter
SMG - Scotts Miracle Grow - Company Description
The Scotts Miracle-Gro Company manufactures, markets, and sells consumer lawn and garden products worldwide. Its Lawn Care segment offers lawn fertilizers, grass seed products, spreaders, other durable products, and outdoor cleaners, as well as lawn-related weed, pest, and disease control products. The company's Gardening and Landscape segment provides water soluble and continuous-release plant foods, potting mixes and garden soils, mulch and decorative groundcover products, plant-related pest and disease control products, organic garden products, live goods and seeding solutions, and hydroponic gardening products. Its Controls segment offers insect and rodent control products, and selective and non-selective weed control products to protect homes and maintain external home areas. The company offers its products under the Scott and Miracle Grow brands plus dozens of others. It serves home centers, mass merchandisers, warehouse clubs, large hardware chains, independent hardware stores, nurseries, garden centers, food and drug stores, and indoor gardening and hydroponic stores through a direct sales force and network of brokers and distributors. Company description from FinViz.com.
This is a seasonal business as you can imagine. Spring and summer are the busy periods while the business loses money during the winter months. In their recent earnings they posted a loss of 96 cents that beat estimates for a loss of $1.28. Revenue rose 27% to $246.8 million and beat estimates for $231.3 million. Gross margin rose 930 basis points to 17.9%. The company announced a 50-cent quarterly dividend payable March 10th to holders on February 24th.
Scotts has been on a strong acquisition spree to prepare its product line for the surge in hydroponic gardening as multiple states approve legal marijuana sales. This is rapidly growing to be a huge business and Scotts has acquired a hydroponics company and a company that manufacturers a wide variety of grow lights for indoor use.
They also sold their lawn fertilization business into a joint venture with TruGreen and they receive revenue from the venture but receive none of the hassles.
They guided for full year 2017 earnings between $4.10 and $4.30 on revenue growth of 6% to 7%.
Earnings May 2nd.
The stock was hammered for a loss after they reported. I do not know what investors wanted to hear but after the $25 gain over the last six months they may have just wanted to take some profits.
SMG does not have LEAPS but in reality we only want to own it for the next two quarters when sales and profits are the highest. I am recommending the longest dated option offered, which is September. That will get us through the August earnings if we decide to hold that long. The $89-$90 level should be support unless the market decides to correct.
Buy Sept $95 call, currently $4.10, initial stop loss $83.50.