A few weeks ago, we highlighted Surna Inc. (OTCQB: SRNA) as a leading play on the controlled environment agriculture (CEA) technology market and believe that it has a favorable risk-reward profile.
Last month, Surna reported first quarter financial results that showed impressive growth and we are favorable on the amount of revenue that can be generated by its significant backlog of projects. Some of the important metrics from the earnings report include:
- Surna generated $2.4 million of revenue which represents a 31% increase when compared to the same period last year
- When compared to the prior quarter, the company’s cash position improved by nearly $1 million
- The company entered approx. $5.5 million of new sales contracts
- Surna’s backlog grew to $11.6 million, the second highest in its history
- The quarter was impacted by production and shipping delays from certain suppliers and this issue is expected to be transitory
- The business has attractive growth prospects, and it plans to focus on entering new markets, adding new products and services
- Surna’s new organic growth strategy and partnership with RSX Enterprises are expected to serve as a catalyst for growth
Surna expects the expanded offerings will improve customer success by providing key infrastructure technologies that are required for a successful operation. The strategy is expected to support the customer acquisition process and we are favorable on how this can impact the growth of the business in the near and long-term.
Trading for a Discount on a Comparative Basis
Although Surna reported record numbers on several important metrics and strengthened its balance sheet, the market’s initial optimism has faded, and we believe that Wall Street is missing out on something significant with the business. Going forward, Surna is well positioned to record strong growth in future quarters, and we believe the opportunity is flying under the radar.
At current levels, Surna’s market capitalization is below $20 million, and we believe that it is trading at a significant discount to other companies that are levered to the ancillary side of the cannabis industry. Two comparable operators to Surna are GrowGeneration Corporation (Nasdaq: GRWG) and urban-gro, Inc. (Nasdaq: UGRO) which are valued at $2.5 billion and $100 million, respectively.
Going forward, Surna plans to capitalize on non-cannabis industries, and we believe these substantially increases the size of its total addressable market (TAM). When compared to GrowGeneration and urban-gro, the company is trading for a major discount, and we believe that Surna has considerable upside potential.
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