Middleby Continuing To Struggle, But Margins Can Start Supporting Valuation

I've written many times before that one of the biggest risks in paying up for growth is that sooner or later the growth slows and those inflated multiples come back to earth. And so it is with Middleby (MIDD), where the company has seen a return to revenue contraction on an organic basis and ongoing execution challenges across the business. I thought multiples/valuation were too high back in May, and the shares have lost almost another 20% of their value, far worse than the performances of Welbilt (WBT), John Bean (JBT), Rational AG (OTC:RATIY), and Marel over that time period.

I'm not as negative on Middleby down at these levels. The company has a legitimately good commercial foodservice business and I see some options for mitigating the drag from the residential and food processing businesses. Margins are pretty decent and the company should generate solid cash flow over the next few years. I'd like to see a new strategic direction from the company focusing more on consolidating its strengths and improving margins/cash flow, but there is still a valuable core here. With a "mid-high" to low double-digit return potential from here, this is a name worth following.

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Middleby Continuing To Struggle, But Margins Can Start Supporting Valuation