Mohawk Industries trades at $119.51 per share and has stayed right on track with the overall market, gaining 17.2% over the last six months. At the same time, the S&P 500 has returned 16.9%.
Is there a buying opportunity in Mohawk Industries, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Mohawk Industries Will Underperform?
We’re cautious about Mohawk Industries. Here are three reasons we avoid MHK, plus one stock we’d rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Mohawk Industries struggled to consistently increase demand as its $11.18 billion of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and is a sign of poor business quality.
2. Cash Flow Margin Set to Decline
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Over the next year, analysts predict Mohawk Industries’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 7.3% for the last 12 months will decrease to 4.6%.
3. New Investments Aren’t Moving the Needle
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Unfortunately, Mohawk Industries’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Mohawk Industries, we’ll be cheering from the sidelines. That said, the stock currently trades at 13× forward P/E (or $119.51 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better investments elsewhere. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Would Buy Instead of Mohawk Industries
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