The beauty of having a refined stock-picking system is you come across companies you may not know…

Or ones that wouldn’t stand out otherwise.

And that’s what I’ve got for you in this week’s Dealmaker’s Diary.

The company makes office furniture. Comfortable – and, yes, expensive – office furniture. But furniture nonetheless.

No tech or AI here.

It has a $2 billion market cap and a global presence… and a relatively cheap P/E.

So far, so good?

But the stock is more volatile than I’d like… its return alpha isn’t where I’d like it… and it doesn’t convert much of its capital to cash.

Yet the company scores an 8 on my proprietary GVI algorithm… and therefore makes the grade.

Plus, the stock has some strong momentum for a 60% gain in the next year.

Those two factors alone make it worth a look.

Get all the details on the company – including the ticker – in my latest video.

Click on the image below to check it out.

Transcript

Hi friends, and welcome to the Dealmaker’s Diary.

You know the funny thing about getting so much information across my desk, spreadsheets and analysis from my team is often you’ll find companies that you’ve not heard of. Because I can’t know all 10,000 companies that go through the database. You might think, “Surely you do because you read about them and so on.”

Not so.

Here’s one that I’ve discovered, which I’m happy with. Herman Miller designs and manufacturers furniture. Now, I did know it as Herman Miller, because when I was working at Bloomberg doing my Bloomberg television show – you can see Bloomberg behind me – their chairs were all Herman Miller chairs, and they cost a fortune. I am talking ridiculous sums of money.

Anyway, it’s now MillerKnoll (MLKN), and it manufactures furniture, lighting and accessories that meet the needs of daily life.

You might think, “Really, where’s the AI in all of this? Where’s the tech? Where’s the growth?”

I’m looking at the numbers… and it’s the point that I’m looking at the numbers that proves to you that sometimes you get companies like this.

So they’ve got a global element as well, which is good, and e-commerce, which is what you’d expect, and multiple channels. So global, multiple distribution channels, all important.

The market cap is $2.19 billion. My father floated a dye manufacturing company on the Mumbai Stock Exchange many years ago, about 30 years ago. It would’ve been a hell of a lot easier selling furniture than making dyes in India. Anyway, I look at that, I think $2 billion? My father’s company is not worth $2 billion. Amazing, just amazing.

Revenue? $949 million in sales. Growth? Absolutely forecast to be there.

Let’s look at valuation and a few other factors though that are important to me. The P/E ratio is forecasted at 14.5. (My team’s put a percentage there, needlessly.) That’s not expensive. It’s not cheap.

Cash return on capital invested is not amazing, but it’s not negative. So it’s not burning cash, and it is generating some cash return on capital invested. You’ll know Deutsche Bank used this… and Goldman Sachs Wealth Management. I’d want it to be above 10%, but I can live with this.

Sortino a little bit lower than I’d want. You know if you’re part of my GVI Investor that these are numbers that I want to be a lot higher. But here in the Dealmaker’s Diary, I look at things that come to my attention and explain them to you.

Now, I want volatility to be lower than 20%, and I want alpha to be positive. So you might say, “My God, Alpesh, thanks very much. Nothing seems to fit the bill.”

Well, actually, what I’m saying is the CROCI is a bit lower than I’d expect and want. Sortino’s a bit lower than I want. Volatility is tiny smidgen bit higher, and I want volatility to be less than 20%.

All this doesn’t exclude the stock from a Dealmaker’s Diary, but given the other growth figures, the company does look interesting.

And, equally importantly, we’ve got here a projection that I’ve done prior and it’s still on line for that. And it’s proven the way forward and there’s momentum on the monthly MACD. Now, from that point I was looking at 142%. From today’s point, obviously if you go from $30 to roughly $50… well, you can do the math: 60 over 100. You’re looking at 60% rise up in the company, at least roughly.

So it’s one that I’m pretty happy with. 66% return, let’s even say 60%, even if it got me 50% in 12 months, I’d be happy with, even if it took two years, be happy with.

And you can see when the MACD’s been at these levels before, it’s a little bit late, but even when it’s been at these levels, there’s been quite a bit of a move up. The trick will be making sure you don’t hold on too long.

It is undervalued, based on discount cash flow as well.

So sit back and relax. Should be good. Hope you enjoyed the analysis. Thank you very much.

Oh, I didn’t mention. On my Growth-Value-Income rating, 8. My proprietary indicator, which looks at valuation, revenue growth, dividend yields, and then weighs those. So value is twice as important as growth as twice as important as dividend yields. And this is an 8 out of 10. Anything with a 7, 8, 9 or 10 gets put into the narrowed list. So that’s been a critical factor for me. That and the rising MACD would for me outweigh that these factors weren’t all brilliant.

So thank you very much.

— Alpesh Patel

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Source: Total Wealth