3 Reasons TILE is Risky and 1 Stock to Buy Instead

Interface’s stock price has taken a beating over the past six months, shedding 26.8% of its value and falling to $19.62 per share. This might have investors contemplating their next move.

Is there a buying opportunity in Interface, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Do We Think Interface Will Underperform?

Even though the stock has become cheaper, we're cautious about Interface. Here are three reasons why there are better opportunities than TILE and a stock we'd rather own.

1. Long-Term Revenue Growth Flatter Than a Pancake

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Interface struggled to consistently increase demand as its $1.32 billion of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and signals it’s a low quality business.

2. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Interface, its EPS declined by 3.5% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.

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 10.3%, somewhat low compared to the best business services companies that consistently pump out 25%+.

Final Judgment

Interface falls short of our quality standards. After the recent drawdown, the stock trades at 7.1× forward EV-to-EBITDA (or $19.62 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. 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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