At US$98.85, Is Mohawk Industries, Inc. (NYSE:MHK) Worth Looking At Closely?

Mohawk Industries, Inc. (NYSE:MHK), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s examine Mohawk Industries’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out the opportunities and risks within the US Consumer Durables industry.

What Is Mohawk Industries Worth?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Mohawk Industries’s ratio of 6.37x is trading slightly above its industry peers’ ratio of 6.36x, which means if you buy Mohawk Industries today, you’d be paying a relatively sensible price for it. And if you believe Mohawk Industries should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Although, there may be an opportunity to buy in the future. This is because Mohawk Industries’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Mohawk Industries look like?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with a negative profit growth of -1.0% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Mohawk Industries. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, MHK appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on MHK, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on MHK for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on MHK should the price fluctuate below the industry PE ratio.

If you want to dive deeper into Mohawk Industries, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 1 warning sign for Mohawk Industries you should know about.

If you are no longer interested in Mohawk Industries, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.