Recall gives the chance to buy on a pullback
Scott’s Miracle Grow was in the mid $50s in 2007 and now its trading down at $30 per share. Though the company recently announced that it would be recalling four of its products, the long term credentials look no worse today than when the stock traded at $56 a share.
Today the company announced that four products are under recall. Two of which are improperly labeled and the other two weren’t yet registered with the EPA. While this does cause some short term troubles, the best time to buy in a good investment is when its cheap. The stock lost 10% on news that hardly affects the long term prospects, at this price, SMG is a great investment.
The recalls of certain products have definitely hurt SMG’s bottom line. Sales costs and costs due to recall were nearly $24 Million in the second quarter. These are expected to be one time costs, and won’t affect future quarters. Cold and wet weather was also cited as a reason for falling sales numbers.
At this point it looks like the damage has been done to Scott’s Miracle Grow. The company that hit $56 just a year ago is not selling for $30 on relatively insubstantial news. Today alone the stock dropped 10% to $30.43. For the long term investor, this looks to be the new bottom.
SMG benefits from plenty of support at the $28 level. A renewed interest in lawn care, economic stimulus money, and no more large expenses should help SMG’s third quarter look multiples better than the second quarter. Hold out to buy to see what traders do to the stock tomorrow, a touch to $28 and then a pause would look pretty convincing.
