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Stock Strategist

Time to Cash In on This Overvalued Stock

The market expects too much of Sherwin-Williams.

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Sherwin-Williams (SHW) stands out as the highest-quality coating company we cover, but the market has saddled the shares with expectations that even a strong management team will not be able to achieve. We believe that a future input price shock is likely to unsettle the stock and lead to prices that reflect more realistic outcomes for the company. With our valuation sitting nearly 40% below the current market price, we strongly encourage investors to take any gains now.

We think expectations are too high for both the top and bottom lines. Management has done an excellent job of opening new stores to seize share. However, the share price appears to assume that the company should be able to open stores even faster, even though the market is becoming more saturated with each expansion.

Charles Gross has a position in the following securities mentioned above: BRK.B. Find out about Morningstar’s editorial policies.