Here’s why Jim Cramer is warning investors to stay away from ScottsMiracle-Gro

CNBC’s Jim Cramer on Thursday told investors to resist the urge to add ScottsMiracle-Gro to their portfolios, despite the stock’s low valuation.

“Historically, this is a great time of year for anything garden related because it’s planting season, and Scotts is a name that we used to get a ton of questions about. … But, over the past thirteen months, these shares have been obliterated,” the “Mad Money” host said.

“While ScottsMiracle-Gro might seem cheap on a price to earnings basis, the problem is that the earnings forecast keeps coming down … and management doesn’t have a handle on how bad it’s going to get,” he later added.

ScottsMiracle-Gro stock fell 6% on Thursday. The company reported better-than-expected earnings in its previous quarter two days before.

JPMorgan upgraded ScottsMiracle-Gro to overweight from neutral on Wednesday, pointing to the stock’s valuation, high margins and market leadership. Stifel downgraded the stock from overweight to hold.

Cramer said that he agrees with Stifel’s more bearish stance on Scotts, particularly because of the company’s struggles with rising raw costs, lack of confidence regarding an earnings target of $8 a share and his concerns with the performance of Scotts’ Hawthorne division. Hawthorne operates in cannabis, an industry Cramer says has been beaten down for the last year.

“On top of that, Scotts has an ugly enough balance sheet that they don’t see management embracing an aggressive buyback, either. In short, business is bad and there’s not much Scotts can do to make it better,” Cramer said.

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