Since November 2020, the S&P 500 has delivered a total return of 91.1%. But one standout stock has more than doubled the market - over the past five years, Interface has surged 249% to $27 per share. Its momentum hasn’t stopped as it’s also gained 29% in the last six months thanks to its solid quarterly results, beating the S&P by 12.1%.
Is now the time to buy Interface, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Is Interface Not Exciting?
We’re glad investors have benefited from the price increase, but we're swiping left on Interface for now. Here are three reasons we avoid TILE and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Interface’s sales grew at a tepid 3.3% compounded annual growth rate over the last five years. This fell short of our benchmark for the business services sector.
2. Fewer Distribution Channels Limit its Ceiling
With $1.37 billion in revenue over the past 12 months, Interface is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Interface historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 11.5%, somewhat low compared to the best business services companies that consistently pump out 25%+.
Final Judgment
Interface isn’t a terrible business, but it doesn’t pass our bar. With its shares topping the market in recent months, the stock trades at 31.4× forward EV-to-EBITDA (or $27 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. We’d recommend looking at one of our top software and edge computing picks.
Stocks We Would Buy Instead of Interface
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