Mohawk Group Holdings, Inc. (NASDAQ: MWK) China
Exposure Could Help the Company, As Country Rebounds From
Coronavirus Outbreak
March 24, 2020 -- InvestorsHub NewsWire -- via Spotlight Growth --
The novel coronavirus, or COVID19, has blind-sided the world, as
the virus outbreak continues to
spread and disrupt the global economy. It is fair to say that some
countries have had better responses to the outbreak than others,
but every single country has made missteps while handling the
pandemic.
As of March 19, 2020, there are 228,451 global cases
of coronavirus, with 9,357
deaths and 86,254 recoveries. According to the World Health
Organization, COVID19 has a global death rate of around 3.4%, up
from an initial estimate of 2% in early March 2020.
However, there is some good new beginning to emerge from the
pandemic. For the first time since the outbreak began in December
2019, China reported no new
domestic cases of coronavirus on Thursday, March 19, 2020. This
marks the fifth consecutive day where China is seeing a noticeable
drop in new infections, which gives experts hope that the outbreak
is beginning to subside in China.
With global markets facing severe losses, China’s stock market
has quietly been outperforming in recent weeks. For companies that
do business in China, like Mohawk Group Holdings, Inc. (NASDAQ:
MWK), this is a welcoming sign, which could see manufacturing
and production activity return to normal in the coming weeks.
Companies With Chinese Exposure Coming Back Into
Focus
China is beginning to attract attention again, as economic
activity begins to normalize. Major Chinese companies like Baidu,
Inc. (NASDAQ:
BIDU), JD.com (NASDAQ:
JD), and Pinduoduo.com (NASDAQ:
PDD), have all made upbeat comments in recent weeks regarding
seeing activity beginning to revert to normal.
Source: Mohawk Group
As a result, “China-related equities could serve as a good
option to hedge against the current market turmoil,” according
to Aiden Research. While Aiden
does note that anything is possible, such as a resurgence of the
outbreak and a global recession, but given the current landscape of
the virus’s spread and relative economic activity, China is one
area that is beginning to shine again.
Chinese manufacturing and production activities are estimated to
be running back at normal capacity by the end of March, according
to major manufacturing firms like Foxconn Technology. This will
help the technology supply
chain recover, after being severely disrupted over the
past several months.
Mohawk Group is one such company with ties to China, which could
see a boost as economic activity returns to normal. The company has
manufacturing partnerships in China, which are responsible for
developing and producing Mohawk’s consumer products. China also
represents an important location for Mohawk in terms of sales.
Mohawk has a team based out of Shenzhen, China as well, which is
considered the “Chinese Silicon Valley.” With workers beginning to
return and activity normalizing, e-commerce should see a healthy
rebound as well.
MWK: Strong Outlook Despite Potential Virus Headwinds,
Positive Adj. EBITDA Still Seen For Q3 2020
In Mohawk’s recent earnings conference call, management
spoke to shareholders regarding recent results, 2020 outlook, and
impact from the coronavirus outbreak. During full-year 2019, Mohawk
saw revenues surge 56.2% to $114.5 million, compared to $73.2
million a year ago. The growth came as a result of increases in
direct sales volume from existing and new products.
For full-year 2020, management issued net revenue estimates in
the range of $160 million to $170 million, as new product launches
from 2019 and 2020 help drive new sales. Management noted that this
outlook does include any "potential inventory constraints for
existing products and potential delays in new product launches
primarily in the second half of the year, due to the impact from
COVID19," according to the recent earnings call. However, the
company does still estimate positive-adjusted EBITDA to be reported
during the third quarter of 2020.
Source: MWK Investor Presentation
“As I look forward to 2020, I see many signs pointing to an
acceleration of the market-based business model and a massive
opportunity to capitalize on a formidable transformation in one of
the world’s largest industries. We’re looking to build a very large
and profitable company and consider ourselves in very early stages
of this journey. It will take time for many to understand us and
probably in hindsight, only some will realize what we’re seeing
now. Myself and the management team are committed to this journey,”
noted Mohawk CEO Yaniv Sarig during the conference call.
Mohawk’s Third-Party Logistics Providers Allows Company
to Side-Step Amazon Fulfillment Shutdown, Offer One-Day Prime
Shipping Coverage to 90% of Continental U.S.
For retailers across the world, it has been “all hands-on deck.”
Essential household items are flying off the shelves, as consumers
hoard due to virus outbreak fears. As a result of the increased
demand for household staple and essential items, some retailers are
blocking inventory buildup for non-essential items, in an effort to
give more warehouse space to the critical items.
Amazon is one such company that has recently announced that
its warehouses will only
accept essential supplies. This essentially means that Amazon’s
fulfillment services are shutdown to a majority of businesses,
unless they happen to produce or supply consumer staples. Amazon
says it will continue to prioritize essential items in its
warehouses until April 5, 2020. This means Amazon shoppers could
see longer delays on items such as electronics and clothing.
Source: MWK Investor Presentation
Fortunately for Mohawk Group, the company’s efforts to build a
third-party operational and shipping warehouse network through
logistics providers, will help the company side-step the shutdown
at Amazon. As noted in the recent earnings call, Mohawk currently
has access to eight operational and shipping warehouses, with a
ninth location planning to become operational at the end of
March.
This third-party logistical network means Mohawk will have
“one-day prime shipping coverage of over 90% of the continental
U.S. population,” according to management.
On March 20, 2020, Mohawk
announced that it is making its proprietary AIMEE AI-based platform
available to other Amazon sellers and businesses that rely on its
fulfillment services during the shutdown.
Source: MWK Investor Presentation
“Yaniv Sarig, Co-Founder and Chief Executive Officer of Mohawk
Group, stated, “During these difficult times it is incumbent on us
all to do our part to help alleviate the challenges currently
facing everyone. Making the Mohawk AIMEE platform available to
sellers who rely on Amazon’s fulfillment services will allow them
to maintain operations, while freeing up Amazon to focus on
delivering essential products, and all of this ultimately allowing
consumers to stay at home and safe.”
In a time when Amazon is beginning to shift to one-day shipping
options and closing off access temporarily to non-essential items,
the Mohawk management team’s insight to diversify beyond Amazon
fulfillment was genius.
Overall, the global sell-off has gotten extremely
out-of-control. We are now in a state of over-correction, as we
have seen years' worth of gains evaporate in just a few weeks. With
China rebounding from the coronavirus outbreak, some analysts and
equity research analysts are seeing the country as a potential
hedge against the global turmoil currently taking place in other
equity markets.
Mohawk is one such company that has been unfairly-beaten down
with the broader market. The recent earnings call provided several
strong silver linings for the company and its future, which is only
further supported by rebounding economic activity in China. Mohawk
looks to be severely cheap currently, as the company prepares for a
strong 2020 and potential positive adjusted EBITDA coming in the
third quarter. Chaos creates opportunity, Chinese-related equities
appear to be enticing in the current market landscape.
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