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Scotts Miracle-Gro SMG isn’t for the faint of heart. This small-cap stock is trading 75% below its all-time high. The company’s balance sheet is marred by high leverage, and management’s near-term focus has hurt long-term results. Yet we think this stock is a buy today for a few reasons. For starters, this narrow-moat company should enjoy a second straight year of profit growth in fiscal 2025, and cost reductions should boost 2026 profits as well. We also expect the company to see long-term volume growth aligning with our US housing growth forecast. And lastly, the shares are significantly undervalued. Scotts lands on our list of Best Basic Materials Stocks to Buy and is among Morningstar chief US market strategist Dave Sekera’s 5 Oversold Stocks to Buy Before They Break Out.
Scotts Miracle-Gro is the largest and most recognizable name in the US consumer lawn and gardening market. Its US consumer segment, which consists of lawn and gardening products, generated 85% of total revenue in fiscal 2024. Scotts generates healthy margins on its products through branding, which allows it to command shelf space in mass-market and home improvement retailers. While actual product differentiation is limited, consumers have been willing to pay up for Scotts’ products. Future demand for gardening products will depend on growth in the housing industry. The Hawthorne segment, which sells indoor gardening, hydroponics, and lighting equipment, contributed a little over 8% of revenue in fiscal 2024. Its long-term growth is tied to the legalization of cannabis in the US, as licensed growers use its products. The remainder of revenue comes from lawn and gardening products sold outside the US.
Key Morningstar Metrics for Scotts Miracle-Gro
Economic Moat Rating
Scotts’ narrow moat is based on brand intangible assets. Strong and recognizable brands—including Scotts, Miracle-Gro, Roundup (licensed from Bayer), Ortho, and Tomcat—have entrenched Scotts as the US gardening market leader. Although these products sell at a premium to private labels, Scotts has maintained its market leadership, demonstrating its pricing power. We think strong marketing and branding create a mutually beneficial relationship between Scotts and home improvement giants Home Depot and Lowe’s, and we expect Scotts will continue to command premium shelf space in these stores for the foreseeable future. We believe that Scotts will more likely than not generate a return on invested capital above its cost of capital for at least the next 10 years.
Read more about Scotts Miracle-Gro’s moat rating.
Fair Value Estimate for Scotts Stock
OurUSD 90 fair value estimate incorporates a 7.8% weighted average cost of capital. For the US consumer segment, after a sales decline in fiscal 2025, we expect normalized volume and improving margins as input costs fall, prices remain somewhat stable, and US housing starts increase demand. We forecast roughly 3% average annual revenue growth through fiscal 2033. We assume segment profit margins return to the low to mid-20s. Given management’s decision to reduce the sale of third-party products, we expect Hawthorne’s fiscal 2025 sales will be nearly 90% below 2021 levels. Over the long term, product rationalizations and cost reductions should make Hawthorne a far smaller but profitable contributor to overall results. The segment should benefit from increased demand for indoor gardening equipment stemming from the legalization of cannabis. We expect Hawthorne’s margins will normalize in the midsingle digits.
Read more about Scotts Miracle-Gro’s fair value estimate.
Risk and Uncertainty
Scotts faces customer concentration risk, as Home Depot and Lowe’s constituted 48% of its total revenue in fiscal 2024. Also, consumer spending on lawn and garden products is highly dependent on weather. Another risk for Scotts is uncertainty around cannabis legalization. Many states have legalized high-THC cannabis for recreational use, but under US federal law, cannabis is illegal. If the federal government decides to overrule state laws, Hawthorne’s customer base of legal cannabis growers could disappear. If cannabis is legalized on a federal level, a greater proportion of cannabis could be grown outdoors, leaving little demand for Hawthorne’s indoor growing equipment. As an agricultural chemicals producer, Scotts faces risks mostly related to emissions and the environmental impact of its products.
Read more about Scotts Miracle-Gro’s risk and uncertainty.
Scotts Bulls Say
US household formation growth will drive demand for gardening products. As the market leader in consumer gardening products, Scotts will benefit from the secular housing trend.Since the covid pandemic, more consumers are engaging in gardening. As the largest player in the consumer gardening market, Scotts should benefit from this change through higher long-term volume.The emerging cannabis industry represents a lucrative opportunity for Scotts, which is well positioned to capture this segment of the market.
Scotts Bears Say
While the recreational gardening industry is growing, consumers could increasingly prefer cheaper private-label and generic products, reducing Scotts’ market share over time.Hawthorne will not be able to generate long-term operating margin expansion if its cannabis-growing equipment doesn’t command durable pricing power.Scotts’ acquisition of hydroponics producers will be value-destructive if the cannabis industry does not expand as anticipated because of regulatory constraints.
This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of June 4, 2025.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
