Mohawk Group Holdings is a small cap (1B) AI enabled consumer product company. If you frequent Amazon, chances are you've encountered some of their brands while shopping. Simply put, Mohawk's business model is leveraging their proprietary AI tool "AIMEE" to research, develop, market, and manage their 400+ SKUs . Along with making their own products, Mohawk is in the business of consolidating 3rd party sellers on Amazon through acquisitions. Based on their technology's determination of market opportunities present on Amazon, Mohawk decides on whether they can become a market leader in segments by either building the product themselves in 6-8 months (much faster than the typical product development life cycle for larger CPG companies) or acquiring a brand (typically at 2-5x EBITDA) and reducing the contribution margin for all of the brand's products with AIMEE.
Some of their successful brands you can find on Amazon: Healing Solutions, Truweo, hOmelabs, Vremi, Rif6
In a recent interview, CEO Yaniv Sarig also explained that through their integration of AIMEE, they onboard these SKU's supply chains and revenue streams in their system within 24-48 hours of the deal closing (much more efficient than any other CPG like P&G, Unilever, etc.).
To put a cherry on top of everything, Mohawk operates at the moment with ONLY 53 employees, yielding around 3.5million per employee in revenue (using 2020 net revenue). In an interview with Sarig he also explains that his vision is to allow for the technology to enable everyone at the company to become "Super Heros" and what 1 employee can do with AIMEE, would require 50 employees at a large CPG company.
Lets look at the financials:
Currently at the price of $35~ $MWK trades at an attractive 3.13 P/S with a 50% CAGR since 2017. Mohawk also has improved their gross margins to 45.6% from 39.4% in their latest quarter.
While the CAGR of revenue is 50%, I believe the revenue growth of the company to be closer to 100%+ growth for next year due to further acquisitions and a recent announcement of potential M&A targets. Direct quote from earnings:
"We are currently evaluating a strong pipeline of potential M&A targets that in total have trailing twelve month’s net revenue of $522 million and trailing twelve month’s EBITDA of $97 million."
These deals which have letters of intent signed are not yet included in guidance (which was already raised this quarter) making me even more bullish. Additionally, Mohawk plans to expand to other countries as quick as possible as they have made a recent acquisition in Photo Paper Direct, their first UK based e-commerce move. I believe this expansion to other markets will be a recurring theme with Mohawk in the future.
I believe that at the growth of Mohawk warrants a higher P/S ratio (closer to 6 to 8 P/S like Thrasio, a comparable company). Along with the higher P/S I believe the market is underestimating the potential revenue growth of the company.
It is important to understand the risks of any business so here they are and my opinions:
- Mohawk is primarily on Amazon and relies on them
- Expanding too quickly / Dillution
- Competitors
For the first point, it is not too much of a concern in my opinion as Amazon also wants their 3rd party sellers to succeed on their platform. You wouldn't want to see Amazon made products in the top search for every product you search for. CEO Yaniv Sarig also discusses this point in the interviews and does not seem too concerned about Amazon interfering with their products.
On the second risk, for any small cap, expanding too quickly can always be a problem, but I do not see this as a major problem for Mohawk since they acquire EBITDA positive brands and have such low overheads with their technology and low human capital. Along with this, I believe that the way they are acquiring companies, they are growing at a much faster pace than their potential dilution.
To the third point, Mohawk's counterpart would be Thrasio which is another innovative CPG company consolidating sellers on ecommerce platforms, valued at 3 billion. I believe that this consolidation of sellers on ecommerce platforms has room for many players and while Thrasio is a competitor, there is room in the market for both since ecommerce has such a large TAM.
Here is a link to their most recent earnings:
Recommended interviews to watch before investing:
Disclaimer: I have a 10% position of $MWK @$36.20 in my portfolio. Also not financial advice.
Submitted March 14, 2021 at 12:12PM by midnighttyph00n https://ift.tt/3lnAUKU
