Interface, Inc. TILE has been stretching out in the market as relevant since it reached a 52-week high on Wednesday. The TILE stock reached a new 52-week high of $27.34 and pulled back to $26.52 at the end of the trading session.

The global commercial flooring company is benefiting from the strong consumer demand trends across its education, retail, and residential living market segments, driven by various initiatives undertaken to cater to its vast customer base. This, alongside its effective capital allocation strategy that ensures shareholder value along with business expansion and focus on reducing debt levels, is driving the company’s growth trend.

Notably, the price performance of the stock left the market behind during 2024. The TILE stock has gained 110.3% year to date, outperforming the Zacks Textile - Home Furnishing industry, Zacks Consumer Discretionary sector and the S&P 500. The detailed price performance is shown in the chart below.

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What’s Driving Interface’s Growth?

Strategic Business Initiatives: To boost customer demand and remain a notable industry player in the market, Interface has been implementing various strategic plans. Highlighting the sustainability approaches, through a combination of technology and data, the company is launching embodied carbon metrics on floor plans created by the Interface Design Studio. This new approach will help its customers gauge and calculate the carbon footprint of a project's flooring, thus achieving their own sustainability and carbon goals.

Furthermore, it has expanded its carpet recycling capabilities at its Netherlands facility. Thanks to this expansion, the company now can process Sequest Bio and Sequest Bio XBacked carpets in EMEA to turn used products into new ones, thereby aiding it to reduce its carbon footprint. Recently, Interface added the Nora brand to its refreshed brand attitude Made for More. This move will help the company increase the efficiency levels in its marketing and brand efforts, thus offering additional sales opportunities.

Strong Consumer Demand: Since the start of 2024, Interface has been witnessing increased demand trends for its services, especially across its education, retail, and residential living market segments. During the first nine months of 2024, net sales increased 4.7% year over year to $980.6 million backed by these tailwinds.

The company is witnessing sales momentum in its Nora Rubber product line as the demand is moving beyond healthcare into other growth segments, including education, biopharma and manufacturing. Furthermore, it is focusing on enhanced productivity of its commercial teams, fostering design, innovation, and sustainability and ensuring global supply-chain management, which are aiding the company in ensuring sales growth along with maintaining margin growth.

Capital Allocation Strategy: The company indeed focuses on an effective capital allocation strategy that includes repaying debt, investing in business and funding dividends to maintain shareholder value. As of the third quarter of 2024, its balance sheet highlights $415 million of liquidity, with cash and cash equivalents of $115.6 million, up from $110.5 million at 2023-end. During 2024, the company also made efforts to reduce its long-term debt, which is currently $329.3 million, notably down from $408.6 million. The trajectory of long-term debt for the past year is shown in the chart below.

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Furthermore, the company’s trailing 12-month return on equity (ROE) is indicative of its growth potential and focus on maintaining shareholder value. Its ROE of 19.9% compared favorably with the industry’s (0.04)%, indicating more efficiency in using shareholders’ funds than peers.

Estimate Trend Favors TILE

The Zacks Consensus Estimate for Interface’s 2024 and 2025 earnings per share (EPS) has increased over the past 30 days. The estimated figures indicate 37% and 13.1% growth from the year-ago quarter’s figures, respectively.

EPS Trend Revision

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TILE Trades Above 50 & 200-Day SMA

Technical indicators suggest a continued strong performance for Interface. From the graphical representation given below, it can be observed that TILE stock is riding above both the 50-day simple moving average (SMA) and 200-day SMA, signaling a bullish trend. The technical strength underscores positive market sentiment and confidence in TILE’s financial health and prospects.

50 & 200-Day Moving Average

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TILE Stock Trades at a Premium

Interface is currently trading at a premium to the industry peers on a forward 12-month price-to-earnings (P/E) ratio basis. The premium valuation indicates that the stock is trading above its industry peers, making it difficult for investors to figure out a suitable entry point. On the other hand, the overvaluation indicates the strong potential of the stock in the market given the favorable trends backing it up, especially since the beginning of 2024.

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Is it Wise to Add TILE to Your Portfolio Now?

TILE has outperformed a few other market players, including MillerKnoll, Inc. MLKN, Armstrong World Industries, Inc. AWI and ACCO Brands Corporation ACCO, in the year-to-date period. During the said time frame, AWI has gained 62.9%, while MLKN and ACCO have declined 4.6% and 4.4%, respectively.

As discussed above, Interface is immensely benefiting from the strong demand trends that are persisting in the market thanks to the various business enhancement and expansion initiatives it is undertaking while looking out for additional opportunities. Furthermore, the company’s intention of repaying debt and ensuring that its shareholders’ investments are boosted is remarkable given the current market uncertainties. This balanced move is backed by its effective capital allocation strategy and leverage from increased top-line growth.

The TILE stock’s overvaluation compared with its industry peers underscores its strong potential in the upcoming period. Backed by the tailwinds mentioned above, the company is indeed well-positioned to continue reaching heights in the upcoming period.

Thus, based on the overall discussion and the favorable trends of technical indicators, investors can consider adding this Zacks Rank #1 (Strong Buy) stock to their portfolio for now. You can see the complete list of today’s Zacks #1 Rank stocks here.

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