Driven by increasing disposable income, technological advancements, and the rising popularity of do-it-yourself (DIY) renovation and remodeling projects, the home improvement industry is booming. Hence, it could be wise to invest in quality home improvement stocks MillerKnoll, Inc. (MLKN), Alarm.com Holdings, Inc. (ALRM), and Steelcase Inc. (SCS) for solid gains.
The economic health of the U.S. is linked to the home improvement and goods industry. Economic conditions, including GDP growth, consumer confidence, and employment rates, considerably influence the industry’s performance. During times of economic prosperity and high consumer confidence, homeowners are more likely to spend on home improvement projects.
Consumers ended 2023 with a surge in confidence and restored optimism for the new year. The Conference Board Consumer Confidence Index increased in December to 110.7, up from a downwardly revised 101 in November.
In 2022, the U.S. home improvement market was valued at $448.08 billion and is further expected to grow at a CAGR of 4.5% during the forecast period (2024-2028).
Increasing demand for smart home products and the growing popularity of outdoor living spaces will propel the market’s growth. Ongoing notable trends in the home improvement industry include an enhanced emphasis on sustainability, aging-in-place renovations, smart home integration, and increased interest in DIY projects.
The U.S. DIY home improvement market is expected to grow at a CAGR of 4.7% during the forecast period (2022-2027). The primary driving factor of the market’s growth is a greater emphasis on DIY home improvement projects for personalized interior designing. With the increase in the disposable income of individuals, they are more willing to invest in these projects.
The advent of e-commerce, free pickup, and delivery opportunities by key vendors will also fuel the DIY home improvement market’s expansion.
Further, technological trends such as 3D printing, Internet of Things (IoT) devices, robotics, virtual and augmented reality, and more are transforming the home improvement industry.
Given the industry’s bright prospects, let’s look at the fundamentals of the best three Home Improvement & Goods stocks, beginning with the third choice.
Stock #3: MillerKnoll, Inc. (MLKN)
MLKN engages in research, designing, manufacturing, and distribution of interior furnishings globally. The company operates through three segments: Americas Contract; International Contract & Specialty; and Global Retail. It provides products under the MillerKnoll, Herman Miller, Herman Miller Circled Symbolic M, Knoll, and Maharam brand names.
On September 14, MLKN opened its first showroom incorporating both the Herman Miller and Knoll brands and others. The nearly 14,000 square-foot space was redesigned to feature dedicated suites for the Herman Miller and Knoll brands alongside DatesWeiser, FilzFelt, Geiger, HAY, Muuto, and NaughtOne.
“When we brought together Herman Miller and Knoll, our brand expertise, product portfolio, and design capabilities grew substantially. With our new home in Dallas, we can help our clients envision, plan, and build inspiring spaces,” said Andi Owen, CEO of MillerKnoll.
In terms of forward non-GAAP P/E, MLKN is trading at 12.92x, 34% lower than the industry average of 19.57x. Likewise, the stock’s forward EV/Sales multiple of 0.96 is 47.4% lower than the industry average of 1.83. Also, its forward Price/Sales of 0.53x is 63.4% lower than the industry average of 1.44x.
For the second quarter that ended December 2, 2023, MLKN reported net sales of $949.50 million. The company’s operating earnings increased 56.1% year-over-year to $60.40 million. Its net earnings came in at $34.40 million, up 96.6% from the prior year’s quarter. Also, its adjusted EPS rose 28.3% from the year-ago value to $0.59.
In addition, the company’s cash and cash equivalents as of December 2, 2023, were $225.80 million, compared to $197.50 million as of December 2, 2022.
Analysts expect MLKN’s revenue for the fourth quarter (ending May 2024) to increase marginally year-over-year to $961.40 million, while its EPS is expected to grow 65.9% year-over-year to $0.68. Furthermore, the company has surpassed the consensus EPS estimate in each of the trailing four quarters.
MLKN’s stock gained 86.2% over the past six months and 30.6% over the past year to close the last trading session at $26.75.
MLKN’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Value, Growth, Momentum, and Quality. Within the B-rated Home Improvement & Goods industry, MLKN is ranked #5 of 57 stocks.
Click here to access additional ratings of MLKN for Stability and Sentiment.
Stock #2: Alarm.com Holdings, Inc. (ALRM)
ALRM offers various technology solutions for residential, multi-family, small business, and enterprise commercial markets internationally. It operates in segments: Alarm.com and Other. The company provides solutions to control and monitor security systems and IoT devices, including door locks, garage doors, thermostats, and video cameras.
On July 26, ALRM launched Gopher Info, a new AI-powered assistant for technicians and service providers that applies large language models to improve service provider efficiency and operations – ranging from training and sales to installation and support.
This is a significant advancement for the security industry. Alarm.com service providers will be one of the first groups in the industry to have this resource, which is accessible through the Alarm.com Partner Portal and Alarm.com’s mobile app for service providers, MobileTech.
ALRM’s trailing-12-month gross profit margin and EBIT margin of 62.54% and 7.69% are 27.9% and 56.2% higher than the respective industry averages of 48.88% and 4.92%. Likewise, the stock’s trailing-12-month net income margin of 7.85% is 234.8% higher than the industry average of 2.35%.
In the third quarter ended on September 30, 2023, ALRM’s net revenue grew 2.6% year-over-year to $221.85 million. Its SaaS and license revenue increased 8.9% year-over-year to $133.10 million. The company’s net income came in at $19.35 million or $0.37 per share, up 6.8% and 5.7% from the prior year’s quarter, respectively.
In addition, the company’s adjusted EBITDA increased 1.5% from the year-ago value to $41.43 million. Its total assets stood at $1.41 billion as of September 30, 2023, compared to $1.32 billion as of December 31, 2022.
Street expects ALRM’s revenue and EPS for the first quarter (ending March 2024) to increase 5.8% and 10.2% year-over-year to $221.90 million and $0.45, respectively. Also, the company has topped the consensus EPS estimate in all four trailing quarters, which is remarkable.
Shares of ALRM have surged 28.7% over the past six months and 34.1% over the past year to close the last trading session at $63.20.
ALRM’s POWR Ratings reflect its sound fundamentals. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
ALRM has a B grade for Sentiment, Value, Stability, and Quality. It is ranked #4 out of 57 stocks in the B-rated Home Improvements & Goods industry.
In addition to the POWR Ratings we’ve stated above, we also have ALRM ratings for Growth and Momentum. Get all ALRM ratings here.
Stock #1: Steelcase Inc. (SCS)
SCS offers a portfolio of furniture and architectural products internationally. The company operates through Americas; EMEA; and Other segments. Its portfolio comprises furniture systems, seating, storage, fixed and height-adjustable desks, lighting, task chairs, and textiles. It serves corporate, government, healthcare, education, and retail customers.
On December 23, SCS’s Board of Directors declared a regular quarterly dividend of $0.10, payable on January 16, 2024, to its shareholders. The company pays an annual dividend of $0.40, which translates to a yield of 2.92% at the current share price. Its four-year average dividend yield is 4.46%.
In terms of forward non-GAAP P/E, SCS is trading at 15.29x, 21.4% lower than the industry average of 19.57x. Also, the stock’s forward Price/Sales multiple of 0.49 is 66% lower than the industry average of 1.44. Its forward Price/Cash Flow of 7.48x is 48.1% lower than the industry average of 14.43x.
During the third quarter that ended November 24, 2023, SCS reported revenue of $777.90 million. Its gross profit rose 6.1% from the year-ago value to $252.30 million. Also, the company’s net income and earnings per share came in at $30.8 million and $0.26, increases of 170.1% and 160% year-over-year, respectively.
In addition, as of November 24, 2023, the company’s cash and cash equivalents came in at $262 million versus $90.4 million as of February 24, 2022.
Analysts expect SCS’s EPS to grow 51.9% year-over-year to $0.14 for the first quarter ending March 2024. The company’s revenue is expected to increase 2.3% year-over-year to $769.15 million for the same period. Moreover, the company has an impressive earnings surprise history as it surpassed the consensus EPS estimate in all four trailing quarters.
Over the past six months, the stock has gained 82% and 93.4% over the past year to close the last trading session at $13.54.
SCS’s POWR Ratings reflect its bright prospects. The stock has an overall grade of A, equating to a Strong Buy in our proprietary rating system.
SCS has an A grade for Value. The stock has a B grade for Growth, Momentum, and Quality. It is ranked #2 among 57 stocks within the B-rated Home Improvement & Goods industry.
Other ratings for SCS of Sentiment and Stability are also provided; click here to check.
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ALRM shares were trading at $66.87 per share on Friday morning, up $3.67 (+5.81%). Year-to-date, ALRM has gained 35.15%, versus a 26.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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