Middleby's Recent Run Of Disappointments May Mark A Transition

With the shares down 20% over the last year, 10% over the last two years, and EPS misses in three of the last four quarters, there are clearly still some issues with Middleby (MIDD). This growth-by-M&A foodservice equipment vendor has long been a somewhat controversial name, but free cash flow margins have been eroding and so too as organic growth in its core Commercial Foodservice business.

If you invest long enough, you start to see patterns, and Middleby seems fit the pattern of a company that once consistently outgrew its end-markets, expanded its margins, and enjoyed robust valuation multiples as a reliable growth stock, but is now transitioning to a new phase of its cycle. These transitions are usually chaotic and are marked by revenue and margin volatility, as well as weaker valuations as the growth crowd moves on to greener pastures and new investors enter the mix.

I don't really know whether that is truly what's going on with Middleby, but the company is definitely losing the benefit of the doubt with Wall Street, and I believe revenue growth is likely to normalize into the mid-single-digits in the coming years. The valuation is getting more interesting, but the shares are likely to remain volatile until the company shows it can settle back into a new growth groove.

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Middleby's Recent Run Of Disappointments May Mark A Transition