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About Mohawk Industries
Flooring.
Kind of a big deal.
However, for those who spend precious hours of their lives concerned with the current and future state of the flooring industry, first of all, we hope you get the help you need, and second of all, you should consider taking some comfort in the fact that the world has Calhoun, Georgia-headquartered Mohawk Industries at the helm, ready to take on any flooring-related challenges that may come your way.
From residential carpet and commercial flooring to panels, insulation, tiles o’ plenty along with some capabilities in countertops as well, Mohawk, as the cool kids say nowadays, really does this.
Through its various brands and subsidiaries, Mohawk designs, manufactures and sells the aforementioned products and is an unequivocal leader in these realms.
This being said, one might initially assume that Mohawk is fairly immune to greater overall economic fluctuations and that it runs a fairly consistent business model that allows it to perform in tip-top shape in all economic seasons, however, upon further thought, one might be able to see that this really just might not be the case.
Sure, we will concede that Mohawk runs a fairly predictable business simply by virtue of being a leader in the sector, however, from where we stand this company relies heavily upon operating within a strong or at least stable real estate market, as when demand for housing dries up or other factors negatively impact the real estate sector, there will inherently be less demand for Mohawk Industries and its products.
Additionally, it is also worth briefly mentioning and considering the fact that Mohawk, through its various product lines, is naturally subject to fluctuating input costs (i.e., commodity cost fluctuations) that many businesses aren’t.
Let’s take, for example, when the price of lumber skyrocketed, as it did in recent years.
This change in underlying cost of lumber more than likely had some sort of impact on Mohawk’s wood-centric product offerings, likely a little more positive as it probably allowed the company to expand its margins in this arena, as is common with most (if not any) commodity-driven or cyclical industries, such as oil and gas.
However, what goes up must eventually come down (thanks, gravity) and as lumber prices came back down to earth, this likely did a bit of a number of Mohawk’s wood-related product profit margins.
While this may or may not have actually been the case, the principal is there in that this is a company that operates in more than a handful of cyclical settings, which an investor should be comfortable with before even considering the company’s stock (NYSE: MHK) as an investment.
If you can’t stomach the ups and downs, you probably shouldn’t be on the ride in the first place.
Speaking of considerations and investments, let’s allow the numbers to do some of the talking and tell us just how desirable (or not) this company’s stock is from the perspective of an objective, long-term investor.
Mohawk’s stock financials
With a current share price of $110.25, a market capitalization of $7.02 billion, a prevailing listed price-to-earnings (P/E) ratio of 331.61 and no annually distributed dividend offered to its shareholder base at the moment, Mohawk’s share price (NYSE: MHK) seems a bit conceded right now.
And by that we mean full of itself.
Namely, as harped on in various past stock analysis articles, it is commonly held that a price-to-earnings ratio of 20 indicates that a security (i.e., stock) is trading at exactly fair value and subsequently anything higher than said benchmark is said to imply that a security is trading above what it is actually worth paying for at the moment, or its fair value.
Sometimes it pays to bid a small premium for a company that is experiencing rapid year-over-year (YOY) growth, for example, however, for a company that was founded in 1878 and a leader in a relatively stable, stagnant industry (at least compared to the tech sector), we have our fair share of doubts that Mohawk’s stock (NYSE: MHK) is worth paying over 300 times earnings for right now.
Let’s do some more digging to see if we are on the right track.
But first, regarding the company’s balance sheet, Mohawk’s executive team is responsible for taking care of and properly deploying and tending to around $14.1 billion in terms of total assets paired with approximately $6.2 billion in terms of total liabilities, which is far from a bad overall structure in terms of one’s balance sheet.
With its total assets outweighing the amount of its total liabilities by more than two times over, this company has done a fine job fortifying a balance sheet that makes it seemingly prepared for much of any financial turmoil that may come its way.
As it relates to the company’s income statement, Mohawk’s total annual revenues since 2018 have been fairly stable, thankfully, even amidst the undulations experienced in the United States and the global economy.
As a reference, the company’s total annual revenues floated at around $9 billion each year between 2018 and 2020, stepping up a bit in 2021 and 2022 to higher levels of around $11 billion each year, which could more than likely be attributed to a few different factors including incremental price hikes due to COVID-19 and supply chain-related pressures as well as commodity price upswings and/or a few other factors that could’ve easily done the trick.
Either way, we are happy to find that Mohawk’s total annual revenues, even amidst some hefty economic turbulence and other external pressures, stayed consistent and steady, frankly more so than we had initially expected.
Happy surprises are always good.
Moving right along to the company’s cash flow statement, Mohawk’s net income and total cash from operations during the same time interval (i.e., since 2018) have been positive and consistent for the most part, which is a plus, however, it is worth noting that this company experienced some softening in these respects in its 2023 report, as both its net income and total cash from operations plunged to rather comparably low levels.
This can be due to heightened expenses in 2022, which isn’t really the end of the world for Mohawk Industries, however, it does certainly speak to the fact that this company, by nature, is cyclical.
Mohawk’s stock fundamentals
Now, let’s talk a bit about this company with respect to its trailing twelve month (TTM) net profit margin, as this is a key metric for any business.
Mohawk Industries just happens to operate off of a wider base than most.
At any rate, TD Ameritrade’s platform has the company’s TTM net profit margin listed as -1.21% to the industry’s average of 8.33%, which is disappointing, to say the absolute least.
It seems as though, at least in recent history (referencing the aforementioned softening in Mohawk’s net income and total cash from operations) that this company’s expenses have taken a turn for the worse and gone up, perhaps as a result of too many cyclical aspects of the business moving in unfavorable directions.
This, my friends, is a negative and evidently a reality one has to grapple with if one was intent on investing in this company and/or its respective industry.
Lastly, in looking at its TTM returns on both assets and investments, Mohawk’s metrics in these respects are both slightly negative while its competition’s averages lie in the low-to-mid teens.
For instance, also according to TD Ameritrade’s platform, Mohawk’s TTM return on assets sit below at -0.96% to the industry’s listed average of 12.74%, which, to say the least, is a substantial difference, not exactly favoring Mohawk Industries, perhaps another byproduct of operating in a multitude of spaces rooted in nothing but cyclicality.
Should you buy Mohawk Industries stock?
Mohawk Industries undoubtedly serves a key role in the world we live in today.
Whether it is at your home, apartment complex, office building, grocery store or practically any other setting, it would not surprise us in the slightest if you found yourselves interacting or frankly, stepping on some of the company’s products on a daily basis.
We like this along with the recently reported condition of its balance sheet and income statement, overall.
However, what we don’t like is the company’s current valuation, its lackluster listed TTM returns on its assets and investments and ultimately, the cyclical nature of its business and the industry within which it operates.
Sure, we might be more inclined to overlook some of these negatives if shares of the company’s stock (NYSE: MHK) were more reasonably priced, however, putting all of the components of this picture together, we don’t think Mohawk is worth splurging on or chasing after at the moment.
We give the company’s stock a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.