Is Mohawk Stock A Buy? Mohawk, a provider of commercial and residential flooring, has the reputation in its industry as a leader with the biggest market cap of any competitor.
The Mohawk Company (MHK) produces various kinds of commercial and residential flooring including laminate, carpeting and more. It is perhaps better known by some of its subsidiary brands, including American Olean, Daltile and Godfrey Hirst.
Some of the other major product lines for MHK include ceramic tile, natural stone and hardwood flooring products, as well as sheet vinyl and luxury vinyl tiling.
Is Mohawk Stock A Buy?
Some analysts see Mohawk is poised to gain from changes in housing markets.
In an earnings call August 7 of last year, Chairman and Chief Executive Officer Jeffrey S. Lorberbaum cited “significant opportunity in remodeling and new construction” which is leading some traders to expect competitive movement from MHK in that vertical.
If the housing market trends this way, the thinking goes, a major provider of modern materials can only gain.
The numbers seem to back up his expectation. Although summer 2020 was a low point with negative earnings, MHW bottom line figures bounced back with a vengeance thereafter with rising profits through to the end of the year.
And 2021 earnings are expected to be in the black with a sharp year over year increase in earnings expected by the third quarter.
Revenue figures are rising in tandem with earnings suggesting the company is controlling its costs very well. The final two quarters of 2020 and the first two of 2021 are expected to be very similar.
For growth investors this is a concern but for more conservative investors who are keen to invest in a company with predictable top line sales and stable operating costs, Mohawk has the ingredients needed.
Like most other stocks, MHK share price suffered a massive dip in 2020 ahead of plummeting earnings but prior to revenues and earnings spiking the share price popped in anticipation of the good results and now more stability should be expected.
Mohawk Faces Stiff Competition
MHK faces challenges from major competitors like Shaw, Engineered Flooring and Armstrong involving innovation in this key industry and the rush toward sustainable products.
The winners will be companies that can pivot in an agile way, put enough resources into continuing research and development, and embark on the best branding initiatives around the changing needs of a housing industry contemplating the fight against climate change.
Some of this concern is ameliorated by Mohawk’s existing initiatives and sustainable product design. The company is pursuing the decrease of toxins in laminates, and the design of sustainable carpeting and other flooring types, while making it clear that this type of trend research is a priority.
Mohawk also towers above most competitors in terms of overall value and size. However, a dark horse to watch out for is the Shaw company, a subsidiary of Berkshire Hathaway.
It’s not hard to imagine Warren Buffett consulting with company leaders to forge a new direction that might leave Mohawk out in the cold.
Is Mohawk Stock A Buy: The Bottom Line
According to analysts following the company, Mohawk is a Hold on balance. Seven of the eleven analysts covering the company rate it as such while the balance rate it a Buy.
By applying a discounted cash flow analysis of the company’s financials we can also arrive at a fair value for the company. This boils down to identifying a valuation which is fair based on future projections of revenues and profits. When translated back to a share price that represents fair value, we arrive at a price per share of $134.60.
When Mohawk trades above that level, it’s likely run too far too fast and is in a speculative realm that should cause conservative investors to worry.
A significant pullback below that level might offer new investors an opportunity to buy with a margin of safety that Warren Buffett and his mentor espouses.
With share prices already running past fair value, the safer choice is to sit on the sidelines and wait for a market correction that could drag MHK share price with it to lower levels and offer a better reward to risk ratio later to get on board.
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.