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Learn moreFlooring specialist Mohawk Industries' (MHK)stockfell 7% on Monday after CEO Jeffrey Lorberbaum and some of the family's trusts reported significant stock sales ahead of Lorberbaum's retirement on Sept. 30.
Lorberbaum has been Mohawk's CEO since January 2001. Twenty-five years in the top job is a long run for anyone. At age 71, retiring's a smart move. The stock sales were clearly planned long in advance.
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According to S&P Global Market Intelligence, Lorberbaum still held 8.56 million Mohawk shares as of the Sept. 18 filing. You can hardly blame the guy for taking some money off the table even at lower share prices. His stake is still worth over $1 billion.
People sell stock for all kinds of reasons. They only buy for one reason: they feel the stock is undervalued. It's debatable whether these sales actually caused yesterday's 1.90 million in share volume, almost double the 30-day average.
A more likely reason is that investors remain concerned about the housing industry generally and, specifically, about the company's ability to maintain margins in such a weak economic environment.
Down nearly 14% in the past month, is yesterday's big drop an opportunity to buy the dip? Or should investors wait for more blood to be shed before jumping on board?
I lean toward the latter answer. Here's why.
MHK Is a Very Volatile Stock
Mohawk's share price has moved up or down more than 5% in a single day on 16 occasions over the past 12 months. So, the 7% move from yesterday isn't unusual. By comparison, Nike (NKE) stock has had five moves of 5% or more in the past 12 months. Nike stock is down 49% over this period compared to 9% for Mohawk.
The odds are good that Mohawk's share price will test $100 on the downside soon enough. MHK last traded below $100 in mid-May. However, there is a counterargument: the Barchart Technical Opinion is a 56% Buy in the near-term. It could just as easily bounce back to $140, where it traded in mid-August.
If you're into options, a Long Strangle, where you buy a long call above the current share price and buy a long put below the current share price, is a defined-risk bet you could make on the stock's volatility increasing and, with it, the share price, in either direction.
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