Union Square Park Sells Mohawk Industries Stock

Union Square Park sold its entire 40,000-share Mohawk Industries position in Q4, leaving a zero quarter-end holding; the prior-quarter stake was valued at $5.1M and represented 1.8% of the fund's AUM. Mohawk shares were $132.60 as of Feb. 16, 2026 (up 9.6% over 12 months but 62% below its peak); adjusted revenue fell ~3% YoY last quarter and management expects Q1 conditions to be similar while anticipating broader market improvement. The liquidation appears a reallocation move (Union Square added to RH, its largest U.S. holding at $9.8M, 4.7% of AUM) rather than a firm-wide capitulation, so this is a notable positioning change but unlikely to be market-moving for MHK given its $8.2B market cap.

Analysis

The liquidation by an outside value-oriented holder is a behavioral signal more than a liquidity shock — it increases the probability that MHK will trade on macro/housing headlines rather than idiosyncratic thesis updates over the next 3–12 months. Flooring manufacturers sit at the tail end of a renovation/repair supply chain: distributors and retailers re-stock first, so any inflection in end-demand typically shows up in big-box sales and contractor backlog before margin recovery at mills and plants. Expect a 6–12 month lag between retail/order flow inflection and meaningful operating leverage for manufacturers, because inventory replenishment and OEM production cadence absorb early demand.

Secondary effects that aren’t priced in: (1) distributors consolidating SKUs during weak housing phases can permanently reroute share toward brands that offer faster turn or broader assortment, creating durable share shifts; (2) improvements in raw-material inflation (vinyl, adhesives) will flow to gross margin only after capacity utilization crosses a breakeven band — a 3–4% topline lift often needed to convert to significant EBITDA expansion. Tail risks are asymmetric on the downside: a renewed interest-rate shock or a multi-quarter drop in remodeling spend would compress both orders and working-capital recoveries, creating drawdowns that can persist >12 months.

A binary reversal catalyst is a visible change in mortgage rates or contractor backlog within the next two quarters — that’s the most likely near-term path to re-rating. Conversely, management guidance that keeps the company in a “flat demand” band means optionality (switch to growth) is muted and valuation will remain dependent on multiple expansion rather than operational acceleration. Given these dynamics, trades should bifurcate horizon: defend against near-term cyclical compression while keeping a small, convex exposure to a cyclical recovery beyond 12 months.

Key Decisions for Investors

• Tactical hedge — MHK: Buy a 1x 30-delta put and sell a 1x 15-delta put (3-month window) sized to 0.2% of AUM. Rationale: protects against a -15% to -30% draw in a short, data-driven housing downside; max loss limited to net premium (~100% of premium); potential payoff 3x–5x if housing headlines worsen.
• Contrarian asymmetry — MHK LEAPs: Allocate 0.5% AUM to Jan-2028 ~0.5-delta calls (or equivalent LEAP call spread). Rationale: captures convex upside if mortgage rates fall or remodeling rebounds in 12–24 months; downside is limited to premium, upside >3x if industry EBITDA recovers and multiples re-rate.
• Relative-value pair — Long LOW (or HD) calls 6–12 months / Short MHK equity 6–12 months, sized dollar-neutral at 0.4% AUM. Rationale: retailers typically lead in inventory restocking and contractor demand; if renovation demand returns, expect retailers to re-rate sooner than upstream manufacturers — target 20–40% gross return with controlled net exposure.
• Growth reallocation — TDOC: Buy 6–12 month call spread sized to 0.3% AUM. Rationale: allocate part of the freed-up capital into secular growth winners that benefit from allocation shifts away from cyclicals; aim for 30–50% upside if market breadth narrows in favor of growth, with premium-limited downside.