Mohawk Group Holdings, Inc. (NASDAQ: MWK) is among the most exciting stories within the technology-enabled consumer goods industry. The company’s proprietary AI Mohawk E-commerce Engine (AIMEE) helps Mohawk understand underlying trends, emerging products/features, consumer sentiment, and more.
Combining its advanced proprietary AI platform with its streamlined manufacturing partnerships allows the company to launch new products within a six-to-eight-month period. This is far more efficient and faster than any of the legacy consumer packaged goods companies, which still largely rely on old methods and procedures. In essence, Mohawk Group is the consumer-packaged-goods (CPG) company of tomorrow.
The recent trading activity does not represent Mohawk, in my opinion, as the overall stock market has seen some of the most intense volatility since the 2008 recession. This has created a potential opportunity for investors to use the recent volatility to gain exposure to an advanced technology-based consumer company. Here are six reasons why investors should pay more close attention to Mohawk:
1. MWK Trading at a Discount to its Sales, 32 New Products Released in 2019
As mentioned above, Mohawk’s streamlined operations help the company bring its products to market faster thanks to its manufacturing partnerships and AIMEE platform. As such, the company can utilize its AI platform to develop products that are in high-demand or experiencing strong consumer sentiment. In 2019 alone, Mohawk launched a total of 32 new products, including 20 during the second half of 2019.
Using e-commerce sales channels like Amazon, Mohawk can get its products in front of online shoppers, which allows the company to avoid headaches and excess costs associated with running a brick-and-mortar location.
Currently, Mohawk is seen trading at a discount to its price-to-sales ratio, which currently stands at 0.59. Mohawk’s P/S is even more undervalued when compared to the S&P 500’s P/S ratio of around 2.4 and the “personal & household products” industry average P/S ratio of 3.48.
This is important because this shows that Mohawk could fall under the “growth at a reasonable price,” or GARP, category. At a time when valuations are constantly a worry on Wall Street, MWK brings a breath of fresh air and highlights that there are still potential opportunities out there in the market.
2. Strong Institutional Ownership, Including World’s Top 3 Asset Management Firms
Institutional shareholders are another important characteristic that should be followed by any company. Having a strong roster of institutional backing can often be interpreted as not only a positive but also as a confirmation of an investors’ perceived bullish thesis.
Mohawk sports a strong roster of institutional firms that have invested in the company. Among the institutional shareholders at MWK include the world’s top three asset management firms by assets under management (AUM): BlackRock, Vanguard, and UBS.
Outside of the “big three,” Mohawk shares can be found in Morgan Stanley brokerage accounts, at hedge fund Hudson Bay Capital Management, and more. Rovida Advisors, Inc., an asset manager out of New Jersey, is the largest institutional shareholder with 3.04% ownership of the company.
3. Artificial Intelligence Interest and Consumer Sentiment Remain Very Strong
Over the past several years, the economy has seen modest growth, but two areas remain very strong: advanced technologies and consumer sentiment.
From automatic chatbots to self-driving cars, artificial intelligence (AI) continues to ingrain itself throughout our daily lives. AI helps increase efficiencies, provides greater analysis & simulation benefits, construct new products, automate repetitive processes, and more.
According to Allianz, AI technologies are estimated to boost profitability across 16 industries by an average of 38% by 2035.
Meanwhile, U.S. consumers continue to see the highest sentiment levels in years. The University of Michigan consumer sentiment index was revised higher for February 2020 to 101, up from a preliminary reading of 100.9. This is the highest reading since March 2018.
American consumers remain strong and upbeat despite the coronavirus outbreak and its impact on global stock markets. However, being that employment continues to show strong characteristics, this will help the average consumer continue positive sentiment.
For Mohawk, which sits at the intersection of AI and consumer packaged goods, these outlooks are extremely reassuring and positive to its bottom line.
4. Mohawk Has Three Analysts Ratings With an Average Rating of “Buy” and Price Target of Over $10
Another important piece of fundamental analysis to consider when conducting research is analyst coverage and rating. While analyst ratings are by no means a “one-and-done” aspect of fundamental research, they do impact the underlying stock and should be followed closely.
Mohawk Group has three analysts covering its stock: Alliance Global Partners, DA Davidson, and National Securities. Alliance rates MWK a “buy” with a price target of $12. DA Davidson also rates MWK a “buy” and holds a price target of $9. Lastly, National Securities gives MWK a “buy” rating and a price target of $10.
When considering the averages, Mohawk has an average consensus of “buy” and an average price target of $10.33. This represents an upside potential of 186.15% when considering its current share price of $3.61. Based on these ratings, it is fair to say that analysts remain bullish over the long-term on Mohawk.
5. Technical Analysis Shows Weakening Bearish Sentiment, Bullish Squeeze in the Cards
When conducting investment research, technical analysis should be an important aspect alongside fundamentals. Technical analysis is derived from price action and its impact on various indicators and oscillators, which can help determine the underlying strength of an up or downside move.
February 2020 was a brutal month for stock markets around the globe, thanks to the coronavirus outbreak. However, with global indices looking to rebound, this spells good news for smaller stocks and companies.
Mohawk’s technical analysis shows a weakening bearish trend, which can be determined with its moving average convergence divergence (MACD) and related histogram essentially at zero. This means that the bearish strength of the downturn in MWK has steadily been weakening since early February 2020. The MACD is now trending sideways and is on watch for a potential bullish crossover.
Stochastics help measure the momentum of an underlying security’s movement. The oscillator can help show periods where momentum is overextended or oversold. MWK’s stochastics show that the stock is just outside oversold territory at 25.86. A bullish stochastics crossover is currently on watch for Mohawk.
The relative strength index (RSI) is another common indicator used in technical analysis, which is another momentum tool that can help show “the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset.”
An RSI of 70 or higher is considered overbought, while a reading of 30 or below is considered oversold. Mohawk’s RSI currently sits at 30.22, which puts it at nearly oversold conditions. For contrarians, this could represent an opportunity.
6. Q4 and FY 2019 Earnings Release Set For March 5th After the Close
On Thursday, March 5, 2020, Mohawk Group Holdings is set to report fourth-quarter and full-year 2019 earnings results after the market close. Management will be holding a conference call later that afternoon at 5 pm EST.
Earnings can often serve as a potential bullish or bearish catalyst for an underlying stock. Mohawk’s upcoming earnings release this week highlights a potential catalyst upcoming. Investors and analysts will be eagerly awaiting results and listening closely to management’s outlook and commentary on 2019 earnings.
In January 2020, Mohawk released the preliminary fourth-quarter and full-year 2019 earnings. For the fourth quarter, management estimates that the company will see net revenues between $25-26 million, which would represent quarter-over-quarter growth between 27%-32%. For the full year 2019, Mohawk estimates net revenues between $114-115 million, which represents year-over-year growth between 56%-57%.
Overall, Mohawk Group Holdings is an exciting company with a business model that is set to thrive both today and in the future. Combining its proprietary AIMEE AI platform with its streamlined manufacturing partnerships, Mohawk has a powerful business model that is currently under-appreciated by the investment community. However, with growing positives and upcoming catalysts, Mohawk looks like it could be ripe for a squeeze higher.
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