Sherwin-Williams Company(NYSE:SHW) enjoys several key competitive advantages. It emphasizes high-quality customer service, and delivers that in person to person and technological communication. These advantages bode well for the company, and provide it with an edge in the industry. The company, however, has an unimpressive balance sheet, and also sells for a high PE ratio.
Sherwin Williams is a global leader in the manufacture of coatings and related products. The company runs paint stores, sells to retailers, and also has a large international sale network. The Paint Stores are operated in North America, South America, Europe and Asia.
The company's biggest competitive advantage is its focus on innovation. The company invests considerable time and resources on newer, more effective products. For instance, a major innovation from the company in recent times is the Emerald™ Interior and Exterior Paint. Emerald interior provides exceptional durability and washability, and has a smooth beautiful appearance. Emerald exterior offers outstanding resistance to weather conditions. Emerald paint is the company's finest paint, yet, and has become very popular since its launch in 2012.
Also, the company stresses superior customer service. To improve the customer service and make choice of paint color easier, Sherwin Williams introduced a mobile app(ChipIt!™) that allows web-based color planning. It allows a user to turn any picture into a palette, pulled from more than 1500 colors. ChipIt! has won several accolades in the industry, including making it to the CLIO shortlist in the Digital/Mobile Apps category. The company also rolled out a newer version of Colorsnap Studio™. This tool makes it easier for users to load photos of their homes and virtually repaint them using the colors of their choice.
At its brick and mortar stores, the company's sales associates are knowledgeable and provide an above-average experience for the customer. Based on a home renovations guide's opinion, the company does a good job of ensuring that the customer is happy with the product.
The current ratio of the company has hovered around 1.0 over the last few years. However, the ratio was higher at the end of 2012, at 1.7, due to issuance of debt. Regardless, the company has done a poor job of maintaining its cash reserves. Long-term investors, in particular, appreciate companies with better working capital.
The long-term debt-to-equity ratio at the company is also relatively high, at almost 1.0. The long-term ratio increased in 2012 by almost $1 billion. Therefore, the ratio was much better in previous years. As things stand, Sherwin Williams carries a less than impressive balance sheet, and is subject to both liquidity and leverage problems.
The stock sells at a premium to higher growth expectations. The PE ratio(ttm) is 28. The stock is up 35% in the last year and has been a lucrative purchase. Also, the earnings of the company hit an all-time high in 2012, and the company seems optimistic about the future. The company has produced relatively good results during bad economic times, and should do much better as growth in the housing industry starts to pick up.
The company's large amount of debt, in relation to the equity share puts the company at risk. If the interest rates were to rise in the near future, the company would need to pay much higher rates on a major portion of the debt.
Higher inflation could also increase the raw material costs of the company. This may reduce the margins of the company.
Sherwin Williams is a well run company, with several competitive advantages to provide a shield against competition. It provides superior customer service and provides technological applications that make the purchasing decision easier for the customer.