Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Is Sherwin-Williams making Money?

Paint pays off big time. Sherwin-Williams Company (NYSE: SHW) shares were trading at $689.60 on 5 October 2020.

Moreover, Sherwin-Williams’ (SHW) quarterly operating income grew from $500.30 million on 31 March 2020 to $841.3 million on 30 June 2020. Additionally, Sherwin-Williams’ quarterly gross profit grew from $1.89 billion to $2.209 billion in the same period.

Dramatically, Sherwin-Williams’ quarterly revenues grew from $4.147 billion on 31 March 2020 to $4.604 billion on 30 June 2020. Plus, Sherwin-Williams’ quarterly common net income grew from grew from $321.7 million to $595.9 million in the same period.

Business is Booming at Sherwin-Williams (SHW)

I think business is booming at Sherwin-Williams (NYSE: SHW) because coronavirus trapped people at home with little to do. Around 59% of Americans admit to spending more time at home since the pandemic bean, estimates.

Those people had time on their hands, and they had to look at their walls. Hence, many of those people began remodeling. The easiest and fastest remodel is to paint the house. Hence, Sherwin-Williams’ sales grew during the pandemic.

Remodeling is booming in 2020 America. estimates that 76% of US homeowners have started at least one home improvement project since the start of the pandemic. Additionally, 58% of US homeowners made improvements indoors which often require paint. Around 55% of American homeowners say the pandemic gives them more time to remodel their homes.

All this is good for Sherwin-Williams because Americans spend a fortune on their homes. Statista estimates Americans spent $328 billion on home improvement projects in the last quarter of 2019. Statista predicts that number will grow to $333 billion in 2020.

How Much Money Does Sherwin-Williams Make?

Impressively, Sherwin-Williams’ quarterly operating cash flow grew from $54.9 million on 31 March 2020 to $1.02 billion on 30 June 2020. In contrast, Sherwin-Williams began 2020 with a $659.89 million quarterly operating cash flow on 31 December 2019.

However, Sherwin-Williams reported a negative quarterly ending cash flow of -$50.4 million on 30 June 2020. That number fell from $238.5 million on 31 March 2020.

Impressively, Sherwin-Williams reported a -$1.002 billion negative quarterly operating cash flow on 30 June 2020. That means Sherwin-Williams could have paid $1.002 billion in debt in June. However, Sherwin-Williams had $8.289 billion in long-term debt on 30 June 2020.

Sherwin-Williams reported just $188.10 million in cash and short-term investments on 30 June 2020. That number fell from $238.5 million on 31 March 2020 and $161.8 million on 31 December 2019.

Thus, I think Sherwin-Williams offers no value despite Total Assets of $4.883 billion on 30 June 2020. Furthermore, those assets fell from $4.928 billion 31 March 2020.

Mr. Market overvalues Sherwin Williams

Therefore, I think paying $689.60 a share for Sherwin-Williams (SHW) is stupid. Sherwin-Williams shows Mr. Market is completely insane.

However, I think Mr. Market has overvalued Sherwin-Williams shares for a long time. Sherwin-Williams started 2020 at $571.85 on 2 January 2020. Plus, Mr. Market paid $715.12 for Sherwin Williams on 15 September 2020.

In my opinion, not even the $1.34 quarterly dividend Sherwin-Williams paid on 20 August 2020 justifies its stock price. Overall gave Sherwin-Williams a 0.65% dividend yield a $4.52 annual dividend on 5 October 2020.

I call Sherwin-Williams overvalued because it has a small amount of cash and a low margin of safety. To explain, I think any company with just $188.10 million in cash and-short-term investments has no margin of safety. In fact, I think Sherwin-Williams could run out of cash and collapse.

Additionally, I think Sherwin-Williams could be incapable of growth. In fact, Stockrow estimates Sherwin-Williams’ revenue growth shrank by -5.61% in the quarter ending on 30 June 2020. In contrast, Sherwin-Williams’ revenue growth rate grew by 2.62% in the previous quarter.

What is Sherwin-Williams?

Sherwin-Williams (NYSE: SHW) manufactures and distributes paints and industrial coatings.

Sherwin-Williams’ brands include Valspar, Sherwin Williams, Minwax, Krylon, Dutch Boy, Cabot, Wattyl, Thompson Water-Seal, and Ronseal. Sherwin-Williams claims to operate over 4,900 company stores and facilities. In addition, major retailers such asLowe’s (NYSE: LOW)sell Sherwin-Williams brands, including Valspar.

 In conclusion, I advise investors to advise Sherwin-Williams (SHW) because of the ludicrous share price. I think there are better and safer stocks in the home-improvement space including the Home Depot (NYSE: HD), Lowe’s (LOW), Walmart (NYSE: WMT), and Berkshire Hathaway (NYSE: BRK.B). Investors need to investigate those stocks and avoid Sherwin-Williams.

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