Bud Labitan

Bottom Fishers May Find Value in Housing Stocks Like Mohawk

I enjoyed your article and decided to add to your discussion this way.
Bottom Fishing is even more profitable when you swim with a fish expert holding a spear gun. So, this is the feeling I get when I read books about Buffett and Munger. Mohawk Industries is a producer of floor covering products for residential and commercial applications in the United States and Europe. The Company operates in three business segments: Mohawk, Dal-Tile and Unilin. The Mohawk segment designs, manufactures, sources, distributes and markets its floor covering product lines, which include carpet, ceramic tile, laminate, rugs, carpet pad, hardwood and resilient, in a range of colors, textures and patterns for residential and commercial applications in both new construction and remodeling. The Dal-Tile segment designs, manufactures, sources, distributes and markets a line of ceramic tile, porcelain tile, stone and other products used in the residential and commercial markets for both new construction and remodeling. Mohawk Industries , MHK has a (5-year annual average) net income growth rate of 19.96 . What competitive advantages does it have? Brand, Technology, Cost of Production, Distribution Network? Are possible advantages sustainable? Does MHK have a solid mix of Product, Pricing Power, Placement, and Promotions? When buying companies or common stocks, look for understandable first-class businesses, with enduring competitive advantages, accompanied by first-class managements.
MHK has a current market price is 39.59 Using an assumed growth rate of 5 percent, the estimated Intrinsic Value is 131 per share from ValuePro.net, and this may or may not indicate a bargain of 91 dollars. Is it a possible Value Trap? If the growth assumptions used in estimating the Intrinsic Value are accurate and sustainable, this may or may not indicate a price-to-value ratio of .31 , and a possible margin of safety of 69 percent. The current price/earnings ratio = 9.8 and It's current return on capital = negative 13.1 Using a debt to equity ratio of .6, Mohawk Industries shows a current return on equity of negative 22. But, that is the current environment and not necessarily the future one. Some industries have higher ROE because they require no assets, such as consulting firms. Other industries require large infrastructure builds before they generate a penny of profit, such as oil refiners. Generally, capital-intensive businesses have higher barriers to entry, which limit competition. But, high-ROE firms with small asset bases have lower barriers to entry. Thus, such firms face more business risk because competitors can replicate their success without having to obtain much outside funding. Growth benefits investors only when the business in point can invest at incremental returns that are enticing; only when each dollar used to finance the growth creates over a dollar of long-term market value. In the case of a low-return business requiring incremental funds, growth hurts the investor. The wonderful companies sustain a competitive advantage, produce free cash flow, and use debt wisely.
Automatic Warning, ( above 0.5 ) on this current debt to equity level of .6
Does Mohawk Industries make for an intelligent investment or speculation today? Time is said to be the friend of the wonderful company and the enemy of the mediocre one. Before making an investment decision, seek understanding about the company, its products, and its sustainable competitive advantages over competitors. Next, look for able and trustworthy managers who are focused more on value than just growth. Finally ask: Is there a bargain relative to its intrinsic value per share today? Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misapraised. In terms of Opportunity Cost, is MHK the best place to invest our money today?
I need to do more study into its competitive position. However, like I told my nephew, the bargains at charts like finviz.com/map.ashx?t=... will show up with the color red and not green.
And, thanks to "Mr. Market," there seems to be more opportunities with the "red" color these days.