Is Herman Miller Stock A Buy?

Herman Miller, Inc. (NASDAQ:MLHR) is a Michigan furniture company that specializes in office furniture and equipment (although it does home designs too).

The company found itself in a great position during the coronavirus pandemic, as people across the world scrambled to set up home offices to remain productive.

Sales held up much better than expected, and the company announced in September it was reinstating its dividend. With the company still trading about a third below its nearly $50 high during the 2019 holiday season, is Herman Miller stock a Buy?

The company gained upon news of its revenues, but it’s still not where it could be. The market cap just shy of $2 billion may be low, considering the company’s strong sales growth. If it can maintain its resilience, investors may find plenty of profit sitting in the brand’s trademark chairs.

Let’s dive into what Herman Miller does, who’s running it, and its financials to see if it’s still worth the bargain.

Herman Miller Does One Thing REALLY Well

The best way to build a business is to do one thing extremely well, and Herman Miller was founded in 1905 by D.J. De Pree specializing in traditional wood furniture.

During the Great Depression, modernist designs were introduced that soon became iconic pieces of furniture. Soon, the company became a leader in ergonomic office chairs, along with a full range of furniture for home and commercial settings.

Its long-standing knowledge in the business helped it pivot when the 2020 coronavirus pandemic hit.

Nearly twice as many people work from home then at the office in 2020, and that doesn’t even include distance learning, virtual conferences, and other events that would normally be held at a venue. This new norm pushed Herman Miller to the front of the pack as consumers flocked online and into retail showrooms to find the perfect chairs, desks, shelving, and workspaces for home offices and home schooling. It wasn’t long before the company picked up a collaborative partnership with Logitech G to enter the world of gaming chairs with The Embody.

Whether the $1500 Embody chair is a topic for another day, but the real question is whether MLHR stock is a value.

Is Herman Miller Stock A Buy?

Herman Miller’s stock jumped by nearly a third in late September when it announced its revenue for the first fiscal quarter of 2021.

In fact, home office revenue increased almost 300 percent, which gave the company $1.24 earnings per share, much higher than the $0.26 expected.

This led to $626.8 million in revenue, which instantly got Wall Street bullish on MLHR. Trading heated up even further when the company announced it was reinstating its dividend payment.

The company also isn’t stuck with just the U.S. economy – in fact, stateside sales were down for the period, but international business surged, generating a quarter of the company’s total profits.

Much of this is thanks to the company’s speed in transforming its website into a work-from-home base, with a completely revamped look to put Design Within Reach for both online and retail customers. As the sector continues to heat up, investors are largely bullish on buying Herman Miller.

It has a nearly $1.8 billion market cap heading into the fourth calendar quarter of 2020, and analysts believe it’ll continue earning income as the winter flu season makes staying home even more likely for large swathes of the population.

Herman Miller Charges 3-5x Alternatives

No stock is without risk, and even a company over a century old can face problems. For example, the $1500 Embody gaming chair made in partnership with Logitech is about three to five times the price of a high-end gaming chair like the $350 Secretlab Omega, $450 noblechairs Epic, and $320 Arozzi Verona V2.

Each has similar ergonomic design and features, and while it may be solid quality, the average consumer is unlikely to spend that much on a chair instead of an RTX 3090 video card.

Tack on $1300 for the Motia gaming desk and $235 for the Ollin monitor arm, and you’ve spent $3000 on your gaming furniture. Y

ou’re also doing it in a holiday season when that money could be used on a next generation console (about $500 a piece), new lineup of video cards ($300-$1500), and a new Oculus VR headset ($300). Much less the $60+ each game costs and the DLC, controllers, etc.

The company could make deals with esports teams, arenas, and streamers, but they’ll need them to actually buy them, since those professionals are the ones who have that kinda cash to spend.

And just because gamers have cash doesn’t mean they’re looking to spend it on high-end furniture.

Herman Miller Competitors Are Powerful 

Besides the gaming chair companies above, Herman Miller faces a ton of competition in office equipment too. Brands like Steelcase, Knoll, Kimball, and Humanscale are deep in the mix with their designs. And home furnishing companies from Ikea to Wayfair are looking for ways to service the growing home office niche.

Just because it has media buzz today doesn’t mean the home office category won’t eventually deflate along with the rest of the economy.

Herman Miller took advantage of a great situation and is attempting an expansion that it could’ve easily done at any point over the past 40 years of gaming, and it’s priced too high. Anyone can price a chair between $500 and $1000 to undercut the brand while still creating a high-end luxury experience.

Of course, Herman Miller hasn’t been in business for over a century by making bad business moves.

Is Herman Miller Stock a Buy? The Bottom Line

Herman Miller is a long-standing furniture business that created a many of the iconic styles seen over the years. Its tables, chairs, and seats experienced a flurry of sales in the face of the 2020 coronavirus pandemic, driving revenues and investors expectations high. It’s the belle of the ball for the fourth quarter of 2020.

But sooner or later the economy is going to shrink. The home offices will be built, and the competition from the secondary market of closed businesses filled with used office furniture will deflate the momentum in the home office market. It’s unclear if unaffordable gaming furniture will save it when that day comes.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.