Introducing MWK (Mohawk Industries Group)

Mohawk is a tiny FBA (fulfilled by Amazon) rollup company that develops consumer products as well as purchases other smaller FBA product lines. 2020 revenue will be around $180 million, with today’s market cap at around $500 million, for a P/S of just under 3. They claim their competitive advantage is an AI platform that analyzes consumer data which dictate their product launch strategies (their near term aim is 10 new products per month). I’m always dubious of AI/ML claims but it does seem to save them some money on the SGA/R&D side. Their products look polished and samples can be found at their website: https://mohawkgp.com/brands

Revenue has gone from 18m to 180m in 4 years. Revenue growth was 56% in 2019, will be around 58% for the 2020 fiscal year, and was 62% YoY in Q3 (144 YTD 2020 vs 89 YTD 2019). Gross margins have hovered in the mid 40s for the entire history of the company.

I’m dipping a toe in because in Q3 2020 the company finally achieved positive cash flow and adjusted earnings, they’ve made some recent acquisitions that should juice revenue growth, the stock price is starting to see some momentum, and the valuation is so cheap. Believe that there is a ton of room for the stock price to grow in the near term. However, there are obvious risks abound with the tiny company size, CPG industry, and significant competition in the CPG roll up space. Please do your own due diligence.

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Thanks for sharing.

Looked into SA and Tipranks analyst reports, looks like this is a SaaS/AI play in the consumer products sector. Recently they did four e-commerce acquisitions. There have been substantial insider buying in the last two quarter with almost no insider selling. Looks like MF purchases are also going up.

MWK seems to be in the same sector as Irobot (IRBT) which trades at a PE of 16. From that angle MWK seems to be fully valued at $16 as MWK is yet to have a full year profit. Looks a bit speculative at the moment.

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Revenues

Period	    Revenue (Quarterly)
---------------------------
09/30/2020  58
06/30/2020  59
03/31/2020  25
12/31/2019  25
09/30/2019  40
06/30/2019  30
03/31/2019  17
12/31/2018  19
09/30/2018  24
06/30/2018  14
03/31/2018  14

Not sure what is organic revenue growth and what is because of acquisitions.
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How is this SaaS? They seem to make their own brands. What is the subscription aspect? How do they scale exponentially from here through adoption (positive net retention rate)?

The revenue growth looks very lumpy. Makes a jump every few quarters. This looks more project-based. Perhaps new brand launches that they then sustain? Looks fishy on the surface.

I’m not sure the bar is set high enough here. I only hold 7 companies so the picture has too be so good that I want to make a spot for the new holding. I’ve been eyeing ETSY, FVRR and SNOW but haven’t bought yet. If those didn’t make it in then this certainly has no chance based on this quick overview.

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“How is this SaaS?”
Rafes, I gather that it is due to their “AIMEE” tool which is an AI-based tool and the fact that they started offering access to third party brands to its AIMEE platform in 2018. “AIMEE” stands for “AI Mohawk eCommerce Engine”. AIMEE sources data from various e-commerce platforms, the internet and publicly available data. AIMEE is integrated with marketplaces in the U.S., including Amazon, Walmart, Shopify and eBay allowing it to estimate trends, performance and consumer sentiment on products and searches within e-commerce platform. Hope this helps.

See page 5 of this presentation:

https://ir.mohawkgp.com/static-files/92e6ed08-cd6c-42c3-a8b6…

(I hold no position in MWK)

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I’d simply like to throw out a word of caution for folks to be careful to not get this company confused with Mohawk Industries Inc. (Ticker: MHK on the NYSE), which is a massive flooring company HQ’ed in Dalton, GA with annual revenues of almost $10 billion, as it is quite a different company.

-volfan84
Disclosure: my wife works for Mohawk Industries, Inc. $MHK, no direct position in $MHK

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Although the price is rising recently, and I just happened to buy it mechanically (as 1/9 of a mechanical screen I follow), I wouldn’t think this is a candidate for this board.

They’re a brand aggregator/acquirer. The point of their AI - reading between the lines of their business profile on websites - is CPG marketing; to identify products that are selling well & highly rated and then sell products that fit profiles.

Not SaaS as an operational enterprise software or platform (PaaS) offering to sell to enterprises.
But I could be missing something.

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Hi all,

Been a few responses in this thread pointing out that this isn’t SaaS or PaaS, which is true. In my opening post on this company I pointed out that the company is a CPG rollup. I also provided a few of the numbers which categorize it squarely as a growth company (60% YoY growth! 10x revenue growth in 3 years! just recently free cash flow positive!). After all, we discuss many companies here that are not SaaS, such as Etsy, Peloton, Teladoc, Twilio, and some bio/med-tech companies. (some of these are PaaS and based on usage as you point out).

In my eyes, growth is growth, and we can all make money buying growth stocks if we aren’t strictly close minded about “SaaS or bust”, MWK is up 40% since the opening post, and Saul himself even brought a medtech company to the board! (which is up 100% in the last few months, better than darlings of the board CRWD or NET)

All that said, if Saul were to shut it down on any of the companies I discuss on the board, it’s not a problem, it’s his board after all!

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Mohawk Group announced another acquisition and increased its guidance for 2021 to ~100% revenue growth YoY ($340m - $370m vs $180m - $190m estimated 2020 revenue), expecting much higher owner earnings for 2021 (and positive GAAP income) as well - https://ir.mohawkgp.com/news-releases/news-release-details/m…. The stock is up 10% in premarket trading

I’m keeping the position small, at 6% of my portfolio. On the one hand, the growth is excellent and valuation is very low, on the other hand, it’s still a direct to consumer retail rollup company and growth by acquisition companies typically flame out as they get larger, so it’s a company that needs to be watched carefully, and I have less conviction than compared to a company like CRWD.

As always, if Saul decides this company does not fit the criteria of the board, I will stop the updates in the future.

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