There is no better time for Mohawk Group (NASDAQ: MWK) to flex its muscles and usher in a new era for the consumer packaged goods (CPG) industry. Combining a traditional CPG with a proprietary artificial intelligence platform, effectively makes Mohawk the future of CPG. Using its platform, the company can locate and pinpoint current and emerging trends within the e-commerce space.
Then with its manufacturing partnerships, Mohawk Group can work on developing the in-demand product that were identified through its AIMEE machine learning platform. From there, the company sells those products on online marketplaces like Amazon.com, Inc. (NASDAQ: AMZN). To put it simply, Mohawk Group can be thought of as a cross between a Proctor & Gamble and Google.
Mohawk Group Announces Agreement to Acquire Truweo at 2.5x Multiple
Mohawk Group is certainly having a great year thus far in 2020. During Q2 2020, the company reported a major earnings beat on both the top and bottom lines. Net revenues jumped 97% to $59.8 million during Q2 2020 on a year-over-year basis. Furthermore, the second quarter marked the first time Mohawk Group reported positive adjusted EBITDA.
Yaniv Sarig, Co-Founder and Chief Executive Officer, commented, “Our strong second-quarter results reflect our continued ability to leverage our tech-enabled business model as well as the agile and innovative culture we have created. We are excited to continue to invest in our software platform to drive further efficiency through automation. The retail and consumer world is moving to online at a faster pace and we are well-positioned to capitalize on this shift in the long term.”
While the earnings beat was extremely significant, Mohawk Group’s recent acquisition of Truweo may be an even more important indicator of the company’s future.
Truweo is a leading e-commerce brand within the health and wellness space. Over the past trailing twelve months ending July 31, 2020, Truweo reported total revenues of $14 million and an operating income of $6.5 million.
The significance of this acquisition is that Mohawk Group is only paying $16.4 million or a 2.5x multiple for Truweo. Management is essentially highlighting the next phase of growth at Mohawk. Being able to acquire cash flow-positive and even profitable e-commerce brands that can be rolled up and fit within the company’s existing portfolio of digital consumer brands is an exciting strategy. It becomes even more enticing if the brand can be acquired at a very low multiple.
“We are excited at the prospect of adding Truweo to our growing portfolio of brands. A vast ecosystem of small e-commerce sellers has emerged over the last five years and it includes many more great companies like Truweo. This transaction marks an acceleration of our M&A strategy. We believe that our investments in our proprietary technology platform will put us in a unique position to acquire many more high-quality accretive businesses in the coming years,” noted Mr. Sarig.
MWK: Analysts Keep “Strong Buy” Rating, Increase Average Price Target to $16.00
After Mohawk Group’s management team discussed the Truweo acquisition and its significance on a conference call, the company’s Wall Street analysts issued price target increases. Overall, MWK’s four Wall Street analysts have a consensus rating of “strong buy,” with an average price target of $16.00. This represents a potential upside of around 84% from its current price.
However, when diving deeper into the individual analyst notes and targets, there are potentially even more bullish undertones. The only five-star analyst that is currently covering Mohawk Group is Tom Forte of D.A. Davidson. Mr. Forte is not only a five-star analyst with a successful track record, but he is also the most bullish on MWK, after setting a price target of $21. Under Mr. Forte’s target, MWK has a potential additional upside of over 141% from current levels.
Overall, Mohawk Group is onto the next stage of its growth plan, after its recent acquisition of Truweo. The significance of being able to acquire and roll-up established e-commerce brands while leveraging their proprietary machine learning platform cannot be overstated. If analysts’ response to the acquisition strategy is any indication, the future is bright at the CPG of tomorrow.
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