Now is not the time to buy Sherwin-Williams stock

We believe there are a few things to fear in SHW stock given its overall Weak operating performance and financial condition. In addition, keeping in mind its High valuation, we think that the stock is Unattractive. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $92 Bil in market cap, Sherwin-Williams provides paints, coatings, and related products through three segments, operating mainly across the Americas, Caribbean, Europe, Asia, and Australia.

[1] Valuation Looks High

This table highlights how SHW is valued vs broader market. For more details see: SHW Valuation Ratios

[2] Growth Is Inconsistent

• Sherwin-Williams has seen its top line grow at an average rate of 4.4% over the last 3 years
• Its revenues have grown 0.3% from $23 Bil to $23 Bil in the last 12 months
• Also, its quarterly revenues declined -1.1% to $5.3 Bil in the most recent quarter from $5.4 Bil a year ago.

This table highlights how SHW is growing vs broader market. For more details see: SHW Revenue Comparison

[3] Profitability Appears Moderate

• SHW last 12 month operating income was $3.8 Bil representing operating margin of 16.5%
• With cash flow margin of 13.7%, it generated nearly $3.2 Bil in operating cash flow over this period
• For the same period, SHW generated nearly $2.7 Bil in net income, suggesting net margin of about 11.6%

This table highlights how SHW profitability vs broader market. For more details see: SHW Operating Income Comparison

[4] Financial Stability Looks Moderate

• SHW Debt was $13 Bil at the end of the most recent quarter, while its current Market Cap is $92 Bil. This implies Debt-to-Equity Ratio of 14.0%
• SHW Cash (including cash equivalents) makes up $200 Mil of $25 Bil in total Assets. This yields a Cash-to-Assets Ratio of 0.8%

[4] Downturn Resilience Is Moderate

SHW saw an impact slightly better than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• SHW stock fell 42.9% from a high of $352.16 on 31 December 2021 to $201.22 on 20 October 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 29 July 2024
• Since then, the stock increased to a high of $399.71 on 25 November 2024 , and currently trades at $364.78

 
2020 Covid Pandemic

• SHW stock fell 33.5% from a high of $198.85 on 23 January 2020 to $132.23 on 23 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 2 June 2020

 
2008 Global Financial Crisis

• SHW stock fell 41.1% from a high of $24.33 on 19 July 2007 to $14.33 on 6 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 15 April 2010

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read SHW Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.