MillerKnoll's Q4 2025 Earnings Beat and Future Growth Prospects: Assessing Undervaluation Amid Margin Contraction

MillerKnoll Inc. (NASDAQ: MLKN) delivered a mixed performance in Q4 2025, marked by a revenue and earnings beat but persistent margin pressures. The company reported consolidated net sales of $961.8 million, reflecting an 8.2% year-over-year increase, while adjusted earnings per share (EPS) came in at $0.60, exceeding guidance. However, operating margin contraction-falling to 5.7% from 2.7% in the prior year-raises questions about the sustainability of its growth and whether the stock's current valuation reflects a compelling opportunity or a cautionary tale according to earnings data.

Valuation Metrics: A Tale of Contradictions

MillerKnoll's valuation appears paradoxical. On one hand, its forward P/E ratio of 8.94, as reported by Yahoo Finance, suggests a discount relative to peers like La-Z-Boy (14.39) and American Woodmark (11.11) according to financial data. On the other, a negative P/E ratio (-71.74) from another source highlights earnings volatility or potential financial strain according to financial analysis. Compounding this, the company's price-to-sales ratio of 0.29x is significantly below the Commercial Services industry average of 1.07x, implying an implied cash flow discount of roughly 24.2% as per market analysis. These metrics collectively hint at undervaluation but also underscore the risks tied to margin erosion.

Industry Comparisons and Cost Management

The furniture manufacturing sector is notoriously cyclical and cost-sensitive, and MillerKnoll's Q4 results reflect its struggle with external headwinds. Tariff-related costs shaved 40 basis points off its gross margin in Q4 2025 and 50 basis points in Q1 2026. To offset these pressures, the company implemented $10.6 million in restructuring charges, primarily through workforce reductions, and prioritized operational efficiencies. While these measures stabilized operating expenses at $321.9 million, the adjusted operating margin of 7.5% in Q4 2025 still lagged behind the 8.3% recorded in the prior year.

Future Growth Drivers and Guidance

Despite margin challenges, MillerKnoll's Q1 2026 guidance signals cautious optimism. The company projected net sales between $899 million and $939 million, with gross margin expected to range from 37.1% to 38.1%. This aligns with broader growth strategies, including expanding its retail footprint and leveraging pricing actions to mitigate tariff impacts. However, the PEG ratio of 1.04 (based on 5-year expected growth) suggests that the market is not overly optimistic about the company's ability to outperform peers.

Weighing the Risks and Rewards

The key question for investors is whether MillerKnoll's valuation discounts its ability to navigate these challenges. Its low price-to-sales ratio and forward P/E imply a margin of safety, particularly if the company can stabilize its operating margin through cost discipline and pricing power. Yet, persistent drag from tariffs and the operational costs of new retail store openings remain significant risks. For instance, Q1 2026's operating margin of 5.6%-up from 1.8% in the prior year-was accompanied by a 50-basis-point gross margin contraction.

Conclusion: A Calculated Bet

MillerKnoll's Q4 2025 earnings beat and undervalued metrics present an intriguing case for value-oriented investors. However, the stock's appeal hinges on the company's ability to balance growth initiatives with margin preservation. With a PEG ratio near 1.0 and a price-to-sales ratio far below industry averages, MLKN offers a compelling risk-reward profile for those willing to bet on its cost management and pricing strategies. That said, the margin contraction and tariff-related headwinds necessitate a watchful eye. For now, the stock appears to straddle the line between undervaluation and vulnerability-a dynamic that could tilt either way in the coming quarters.