Even though Middleby (currently trading at $137.34 per share) has gained 9.7% over the last six months, it has lagged the S&P 500’s 34.7% return during that period. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Middleby, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.
Why Do We Think Middleby Will Underperform?
We're swiping left on Middleby for now. Here are three reasons we avoid MIDD and a stock we'd rather own.
1. Core Business Falling Behind as Demand Declines
Investors interested in Professional Tools and Equipment companies should track organic revenue in addition to reported revenue. This metric gives visibility into Middleby’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Middleby’s organic revenue averaged 4.6% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Middleby might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Middleby’s revenue to rise by 2.1%. While this projection indicates its newer products and services will catalyze better top-line performance, it is still below the sector average.
3. Recent EPS Growth Below Our Standards
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Middleby’s EPS grew at a weak 1.2% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 2.9% annualized revenue declines and tells us management adapted its cost structure in response to a challenging demand environment.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of Middleby, we’ll be cheering from the sidelines. With its shares trailing the market in recent months, the stock trades at 15.7× forward P/E (or $137.34 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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