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Last week, Surna Inc. (OTCQB: SRNA), operating as Surna Cultivation Technologies, reported preliminary second quarter revenue and net income results and the market responded favorably to the numbers.
Although the shares jumped higher on this announcement, Surna’s valuation is attractive on several key operating metrics and when compared to its peers. We believe the management team has been executing on a multi-faceted growth strategy that has been centered around launching new products and services and capitalizing on the controlled environment agriculture (CEA) market.
During the second quarter, Surna recorded $353,000 of adjusted net income on $4.5 million of revenue. When compared to the same period last year, adjusted net income increased 174% and revenue increased by 168%. In addition, the second quarter revenue represents a 91% quarter-over-quarter increase compared to the first quarter of 2021. The revenue and adjusted net income in the second quarter of 2021 both represent the second highest amounts in the company’s history.
When Surna reported first quarter financial results earlier this year, the business reported a record amount of booking backlog. So far this year, the company has seen increased commercial traction and is well positioned to capture additional market share as the management team continues to execute on the previously announced organic growth initiatives that are focused on expanding its product and service offerings.
Surna attributed the strong preliminary second quarter results to its ability to deliver on a substantial backlog and its continued success in launching new products and services. A month after the company reported first quarter financial results, the management team discussed how the business would execute its revised organic growth strategy and we have favorable view on the company’s strategy execution.
An Execution Story in the Making
Last week, Surna continued to execute on their strategy with the addition of architectural design services to its portfolio of product and service offerings. As part of this initiative, Surna will work with its customers to deliver a holistic plan that addresses.
Based on Surna’s experience working on more than 200 commercial cultivation facilities and with cultivators all over the world, the company has a deep understanding of the systems that are used in cultivation operations and how those systems are integrated within the building itself for the most efficient yields.
Surna will also assist operators on a variety of projects, and we find the diversity and breadth of the offerings to be significant. From basic floor plan development and schematics to a fully integrated licensed architectural and mechanical, electrical, and plumbing (MEP) permit and construction plan set, Surna can assist with any or all of a facility’s design needs.
From permitting support, to construction administration, to post-construction assistance and future design collaboration, Surna will provide project support for the length of the project and we are favorable on how this service rounds out the company’s portfolio of architectural design services.
Focused on Growth and Achieving Positive Cash Flow
Going forward, we are bullish on the growth prospects that are associated with Surna and believe the business will benefit from the expansion of the products and services that it sells. We consider this to be one of the most important trends for the business and expect it to continue to serve as a catalyst for growth.
In future quarters, a key financial metric focal point for Surna is achieving breakeven or positive operating cash flow. We have a favorable view on how the management team is focused on generating positive cash flow and believe the market is discounting this aspect of the story.
From expanding the number of products and services that it sells to enhancing and enlarging the amount of human capital that is on the management team, Surna has been laser focused on growth and is an opportunity that we are excited about.
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 $2.4+ billion and $100 million, respectively, and we find the disconnect on valuation to be substantial.
Although Surna has recorded impressive advancements so far this year, the response from the market has been muted and we believe the disconnect creates an unique opportunity for investors looking for companies that are trading at a discount (when compared to its peers) and has attractive growth prospects.
If you are interested in learning more about Surna Cultivation Technologies, please send an email to support@technical420.com with the subject “Surna Cultivation Technologies” to be added to our distribution list.
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Pursuant to an agreement between StoneBridge Partners LLC and Surna Inc. (SRNA) we have been hired for a period of 180 days beginning April 12, 2021 and ending October 12, 2021 to publicly disseminate information about (SRNA) including on the Website and other media including Facebook and Twitter. We are being paid $7,000 per month (SRNA) for or were paid “0” shares of restricted common shares. We own zero shares of (SRNA), which we purchased in the open market. We plan to sell the “ZERO” shares of (SRNA) that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website purchase without further notice to you. We may buy or sell additional shares of (SRNA) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.
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