Mohawk Group Holdings, Inc. (NASDAQ: MWK) has been an outperformer over the past month, as investors search for beaten-down bargains and resilient growth stories. Compared to the S&P 500’s near 6% rally, Mohawk has surged over 87% during the past month.
With a series of strong fundamental developments recently announced, it appears the markets may be beginning to appreciate Mohawk as a resilient growth opportunity. Even after its strong recent run, analysts remain bullish and continue to estimate an additional upside of around 70% to an average target price of $7.50.
MWK: Breaking Down Recent Growth Developments
Since early April, Mohawk has released a series of press releases, which seem to support the stock’s recent performance.
April 2020:
9th – Mohawk Group releases preliminary first-quarter net revenue in a range between $25-26 million, which represents year-over-year growth between 40.4% and 46%.
Management notes that the company is seeing strong demand across numerous product categories, such as freezers, air purifiers, portable washing machines, hair trimmers, and more. Thanks to Mohawk’s proprietary AIMEE software, the company was able to capitalize on the strong demand for these items.
14th – The Financial Times named Mohawk Group one of America’s fastest-growing companies in 2020, with a ranking of 114 out of 500 on the list.
“We are thrilled to have been recognized and honored to be ranked alongside such industry-leading and innovative companies,” said Yaniv Sarig, Co-Founder and Chief Executive Officer of Mohawk Group. “Our proprietary AIMEE software ideation platform allows us to bring research-driven products directly to consumers quickly and we have a significant opportunity to continue scaling our portfolio and SaaS offerings as consumer online spending habits continue to shift.”
May 2020:
5th – Mohawk announces the launch of its fifth brand, Holonix, which will focus on health and wellness products. Holonix’s first product, an easy-to-use single-use hand sanitizer, is estimated to begin sales in mid-May 2020.
“The data surrounding demand for categories such as sanitization and protection is obviously going through the roof right now, we are leveraging our agile supply chain and analytics platform to zero in on specific needs we expect will continue to show strong demand post the COVID-19 crisis,” said Yaniv Sarig, Co-Founder and Chief Executive Officer of Mohawk Group.
“The first product we are launching under the Holonix brand is a single easy to use dosage of hand sanitizer targeting demand for individual size and on the go searches. As there is a tremendous need for these kinds of products by essential workers and first responders, we made the strategic decision to help fill these needs consistent with Mohawk’s core business model. We expect the demand for this and other products to remain strong as states and communities navigate reopening their businesses and schools while ensuring their people remain safe. We will continue to leverage our access to manufacturing capacity to bring these critical products to market.”
11th – The company releases first quarter 2020 results, which showed net revenues jumped 43.6% to $25.6 million. First quarter gross margins improved to 40.2% compared to 37.4% last year.
Overall, Mohawk launched 16 new products during the first three months of 2020. Management also increased guidance for full-year 2020 net revenues to the new range of $165 million to $175 million. Furthermore, the Mohawk team estimates positive adjusted EBITDA during the third and fourth quarter of 2020, as e-commerce activity picks up.
Yaniv Sarig, CEO: “Our strong first quarter results are reflective of our ability to continue leveraging our tech-enabled business model driven by data, automation and artificial intelligence to expand our market share. Importantly, as consumers are spending more time at home, we are experiencing an increase in demand for our products across categories. Balancing liquidity and growth remains a top priority, and we are managing all expenses, working capital, and capital expenditures efficiently. These efforts, combined with our AIMEE software, and new product pipeline, have us well-positioned to capitalize as purchasing behavior further shifts towards e-commerce.”
18th – Mohawk is not just about consumer products, its proprietary machine learning platform, AIMEE, has the power to be a driver of growth all on its own. On May 18, 2020, Mohawk announced it has added on a new Software-as-a-Service (SaaS) client, the London-based private equity firm Emerisque.
Under the agreement, Emerisque will utilize the AIMEE platform and its “machine learning, natural language processing, and data analytics to evaluate strategic acquisitions,” according to Mohawk.
Average Analyst Price Target Estimates Additional 70%+ Upside From Current Levels
Analysts covering Mohawk Group continue to maintain a bullish long-term outlook, even despite its recent strong performance. According to TipRanks, analysts have an average 12-month price target of $7.50 on Mohawk Group. This implies an upside of over 70% from its current trading level around $4.30.
National Securities analysts Allen Klee noted, “MWK [has] significantly faster growth rates than traditional CPG Companies. We could also argue that MWK can be viewed as a blend of CPG and a software/machine learning company where comps for latter trade at even higher multiples. We believe the pullback in the stock is not warranted as fundamentals remain solid and the company is positioned to outperform in the current difficult economy.”
To back up his bullish thesis, Klee reiterated his “buy” rating on Mohawk and rose his price target to $9.00. This implies an upside of around 109.30% from Mohawk’s current price.
Overall, Mohawk Group is extremely well-positioned to continue sales growth even despite the on-going pandemic. Closed retail locations and fears of contracting the virus are driving consumers to increasingly turn to e-commerce options. As more consumers shop online, Mohawk’s AIMEE platform streamlines the process by showing e-commerce and search trends, as well as predictions. This allows management to utilize its manufacturing and logistic partnerships to bring high-demand products to market in a faster and more efficient manner than traditional consumer packaged goods companies.
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