When I last wrote about Middleby (NASDAQ:MIDD), I thought that a mix of concerns about growth had created a pretty rare opportunity to pick these shares up at a reasonable valuation. Since then, organic growth has improved and the shares are up around 40%. While I do think there is ample room for Middleby to improve its residential business, opportunity to improve is not the same thing as capability. I'm also a little more concerned about the company's potential growth leverage from M&A if/when interest rates start moving higher.
The valuation on Middleby shares has returned to its more normal level of overvalued in my eyes. Although the company is likely only at 10% share (or less) of its addressable market and its debt level isn't that high relative to EBITDA and/or free cash flow, roll-up stories usually reach a point of diminishing returns and the underlying market growth rate isn't that high. Middleby will likely eventually need to centralize its operations more than it has and I'd like to see the company pursue service-oriented business. Nevertheless, this is a stock I'd keep on a watch list with an eye toward taking advantage of future pullbacks.
Growth Reacceleration Has Rebuilt Middleby's Multiple