Sherwin-Williams: A colorful success

Sherwin-Williams is one of the world’s leading paint and coatings companies and a dominant player in the North American market. Known for its strong relationships with professional contractors and its extensive network of company owned stores, the company combines brand strength with a vertically integrated business model that spans product development, manufacturing, and direct retail distribution. With thousands of stores, a focus on operational discipline, and continuous investment in innovation and customer service, Sherwin-Williams aims to strengthen its market position while driving long term growth. The question remains: Does this industry leader deserve a spot in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in Sherwin-Williams at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Sherwin-Williams, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Sherwin-Williams was founded in 1866 in Cleveland, Ohio and has grown into one of the world’s leading manufacturers and distributors of paints, coatings, and related products. The company operates a highly integrated business model that spans product development, manufacturing, distribution, and retail sales, allowing it to serve a broad range of customers including professional contractors, industrial manufacturers, commercial clients, and retail consumers. Sherwin-Williams generates the majority of its revenue in North and South America but has steadily expanded its presence across Europe, Asia, and other international markets. The business is organized into three primary segments that together create a diversified yet complementary operating structure. The Paint Stores Group forms the core of the company and consists of thousands of company-owned stores across the United States, Canada, and the Caribbean. These stores sell Sherwin-Williams branded products directly to professional painters and homeowners, creating a direct relationship with end customers and allowing the company to control pricing, service, and product positioning. This segment is highly focused on professional contractors, who rely on consistent quality, product availability, and technical support, making Sherwin-Williams a critical partner in their daily operations. The Consumer Brands Group manufactures a broad portfolio of branded and private-label paints, coatings, and related products that are distributed through third-party retailers such as home improvement chains, hardware stores, and independent dealers, while also operating a network of company-owned stores in Latin America. This segment also plays a central role in the company’s supply chain, supporting manufacturing, logistics, and product innovation across the organization. The Performance Coatings Group focuses on industrial applications, developing specialized coatings used in areas such as automotive refinish, packaging, wood and metal finishing, and marine and protective coatings. These products are sold globally through a mix of direct sales, company-operated branches, and independent distributors, allowing Sherwin-Williams to participate in a wide range of industrial end markets. Across all segments, the company emphasizes a customer-first strategy focused on reliability, product performance, and helping customers operate more efficiently and profitably, which supports long-term relationships and recurring demand. Sherwin-Williams’ competitive moat is built on a combination of brand strength, vertical integration, scale, and deep customer relationships that reinforce each other. The brand itself is one of the company’s most important assets, having earned the trust of professional painters and contractors over more than 150 years. This trust translates into high customer loyalty and repeat business, as professionals often prefer to use the same products across projects to ensure consistent results. The company’s vertically integrated model is a key differentiator in the industry. By controlling everything from research and development to manufacturing and distribution through its own store network, Sherwin-Williams maintains tight control over product quality, inventory, and customer service. This structure also provides significant operational flexibility, allowing the company to respond quickly to changes in demand or supply conditions. During periods of disruption, such as the COVID-19 pandemic, this integration enabled Sherwin-Williams to continue supplying customers while competitors relying more heavily on third-party channels faced constraints, helping the company gain market share. Another important advantage is its extensive network of company-owned stores, which creates a direct link to customers and acts as both a distribution channel and a service platform. These stores are staffed with trained employees who provide technical advice, color matching, and job site support, strengthening customer relationships and increasing switching costs. At the same time, the company’s presence in major retail channels ensures broad product availability, creating a strong omnichannel distribution model. Scale further reinforces the moat by enabling purchasing advantages, manufacturing efficiencies, and meaningful investment in product innovation. Sherwin-Williams has demonstrated consistent pricing power, with the ability to pass through cost increases without significant loss of demand, reflecting the value customers place on its products and service. The combination of brand loyalty, integrated operations, direct customer relationships, and scale creates a durable competitive position that is difficult for smaller or less integrated competitors to replicate.

Management

Heidi Petz serves as the CEO of Sherwin-Williams, a role she assumed in 2024 after previously serving as President and Chief Operating Officer. She brings extensive experience across both consumer and industrial segments of the paints and coatings industry, along with a strong track record of driving operational performance, strengthening customer relationships, and delivering consistent growth. Her appointment reflects Sherwin-Williams’ focus on continuity, execution, and maintaining its customer-first strategy while positioning the company for long-term expansion. Before becoming CEO, Heidi Petz held several senior leadership roles within Sherwin-Williams following the acquisition of The Valspar Corporation in 2017. She served as President of the Consumer Brands Group, where she oversaw a broad portfolio of branded and private-label products distributed through major retailers and international markets. She later became President of The Americas Group, the company’s largest segment, which includes the extensive network of company-owned stores serving professional contractors. In this role she was responsible for one of the most important drivers of Sherwin-Williams’ earnings, further deepening her understanding of the company’s core business and customer base. Her progression to President and COO before becoming CEO highlights a deliberate succession path and provides her with a comprehensive view of the company’s operations. Prior to joining Sherwin-Williams and Valspar, Heidi Petz held leadership roles at Newell Rubbermaid, Target Corporation, and PricewaterhouseCoopers. These experiences gave her exposure to consumer behavior, retail dynamics, supply chain management, and corporate strategy, all of which are highly relevant to Sherwin-Williams’ integrated business model. Her background across both consumer-facing and operational roles has helped shape a leadership style that balances strategic thinking with execution. Heidi Petz holds a bachelor’s degree in Business and Leadership from the University of Richmond and an MBA from Loyola University Maryland. She also serves on the board of Ulta Beauty and the University Hospitals Health System. Throughout her career, she has built a reputation for being highly customer focused and execution oriented, with an emphasis on accountability, operational discipline, and continuous improvement. Since becoming CEO, Heidi Petz has continued to emphasize Sherwin-Williams’ established playbook centered on winning market share, maintaining pricing discipline, and deepening relationships with professional customers. She has highlighted the importance of helping customers become more productive and profitable, which reinforces the company’s role as a partner rather than just a supplier. Her approach reflects a focus on controlling what can be controlled, investing where returns are clear, and using periods of volatility as opportunities to strengthen the business. With her deep institutional knowledge, experience across key segments, and alignment with the company’s culture, Heidi Petz appears well positioned to continue executing Sherwin-Williams’ long-term strategy while building on its strong competitive foundation.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Sherwin-Williams has consistently delivered a high ROIC above 10% throughout the past decade, and above 15% in most of those years. This is impressive, especially considering that the business is somewhat tied to housing and industrial activity, which can be cyclical. The fact that Sherwin-Williams is still able to maintain high returns through different market environments suggests that the strength comes from the business model rather than short term tailwinds. Several factors explain why Sherwin-Williams has historically generated high returns on capital. First, the company operates a vertically integrated business model that spans product development, manufacturing, distribution, and retail. A large portion of the products sold through its Paint Stores Group are produced internally and sold through its own stores. This allows the company to capture more value across each step of the process, from production to the final sale. It also improves efficiency, as manufacturing and distribution can be closely aligned with demand from its own store network, which supports strong margins and high returns on capital. Second, the direct to customer model plays a central role. Sherwin-Williams operates thousands of company owned stores, especially in North America, where it sells directly to professional painters and contractors. This means the company keeps control over pricing and the customer relationship instead of relying on retailers. The stores are not just places where customers buy paint. They also provide advice, color matching, and support for projects, which makes them an important part of the customer’s daily work. This makes customers more likely to return, which supports recurring demand and allows Sherwin-Williams to generate strong earnings without needing to reinvest heavily. Third, the customer base itself is an important reason why returns are high. Professional contractors make up a large part of revenue and they care more about reliability and consistent quality than finding the lowest price. They need products they can trust because their own reputation depends on it. This makes demand more stable and gives Sherwin-Williams pricing power, which is a key driver of high ROIC. Fourth, scale also plays an important role. Sherwin-Williams is one of the largest companies in the coatings industry, which means it can produce at lower costs and invest more in improving its products. This helps protect margins, even when raw material costs increase. The company has shown many times that it can raise prices when costs go up without losing customers, which supports both profitability and returns on capital. Looking ahead, Sherwin-Williams should be able to maintain a high ROIC. The key drivers are still in place, including its vertically integrated model, strong customer relationships, and scale. However, the business is still affected by housing and industrial activity, so returns can move up and down depending on the market. At the same time, investments in new stores, production, and expansion into new markets will increase the capital base, which can slightly reduce ROIC in the short term. Overall, the business model suggests that Sherwin-Williams can continue to generate strong and attractive returns on capital over the long term.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Sherwin-Williams has seen some fluctuations in its equity over the past decade, with a few years of decline followed by more consistent growth in recent years. The declines in 2020 and 2021 were not due to a weak underlying business, but rather a result of earlier acquisitions, especially Valspar, and the costs and balance sheet adjustments that followed. When a company makes a large acquisition, it often takes time before the full earnings contribution shows up, while the capital used is already reflected on the balance sheet. This can temporarily pressure equity. Since 2022, equity has increased every year. This has mainly been driven by strong earnings. Sherwin-Williams has been able to raise prices, maintain solid demand, and keep costs under control, which has supported profit growth. As profits increase, more value is added to the business, which leads to higher equity over time. It is also worth noting that equity for Sherwin-Williams will not always move in a straight line. The company generates strong cash flows and high returns on capital, which means it does not need to retain large amounts of capital to grow. As a result, equity can fluctuate depending on earnings, investments, and how the company manages its balance sheet in a given year. Looking ahead, equity is likely to continue increasing over time, but not necessarily every single year. As long as Sherwin-Williams continues to generate strong earnings and maintain its pricing power, the long term trend should be positive. However, short term fluctuations can still occur due to economic cycles, investments, or temporary changes in profitability.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Sherwin-Williams has consistently generated positive free cash flow over the past decade, which is a strong sign of a high-quality business. One of the main reasons for this is the company’s strong profitability. Sherwin-Williams operates with solid margins, supported by its vertically integrated model and its ability to sell directly to customers through its own stores. This means that a large part of the revenue eventually turns into cash. The company also benefits from a stable and recurring demand from professional contractors, which supports consistent cash generation over time. Another important factor is that the business does not require extreme levels of investment to grow relative to the cash it generates. While Sherwin-Williams does invest in new stores, production, and infrastructure, these investments are generally manageable compared to its earnings. This allows the company to convert a meaningful share of its profits into free cash flow. Free cash flow has fluctuated over time, and this is mainly due to changes in capital expenditures. In recent years, the company has increased its investments significantly, especially related to its new global headquarters and research and development center. These projects have increased capital expenditures and therefore reduced free cash flow and the levered free cash flow margin in some years. As these projects are completed, capital expenditures should normalize, which will support higher free cash flow and margins going forward. Free cash flow reached its highest level ever in 2025. While it is always difficult to say whether a new peak will be repeated every year, the underlying drivers suggest that strong cash generation will continue. As long as Sherwin-Williams maintains its margins, pricing power, and disciplined cost control, it should be able to generate growing free cash flow over time. However, free cash flow will still move up and down from year to year depending on investments and the economic environment. Sherwin-Williams uses its free cash flow in a disciplined way. A portion is reinvested back into the business through capital expenditures and acquisitions that support long term growth. At the same time, a large share is returned to shareholders. The company has a long history of increasing its dividend, and it also repurchases shares on a regular basis. In 2025 alone, it returned a significant amount of cash to shareholders through both dividends and share buybacks. This balanced approach between reinvestment and returning capital is an important part of the company’s strategy. While the free cash flow yield is higher than it has been in recent years, it still suggests that the shares are trading at a premium. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It is crucial to determine whether a business has manageable debt that can be repaid within a three year period. We calculate this by dividing the total long term debt by earnings. After performing the calculation on Sherwin-Williams, I found that the company has 4,04 years of earnings in debt. This is slightly higher than I would prefer. That said, the debt level still appears manageable. Sherwin-Williams generates strong and consistent cash flow, which makes it easier to service and reduce its debt over time. Management also targets a leverage ratio of around 2 to 2,5 times EBITDA, and the company is currently within that range. This indicates that the current debt level is in line with how management wants to run the business. It is also worth noting that interest expenses are expected to increase somewhat due to higher interest rates and recent financing. However, given the company’s strong earnings and cash generation, this does not appear to be a major concern. Overall, while the debt level is slightly above my preferred threshold, it does not seem to pose a significant risk to the business.

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Risks

Macroeconomic factors is a risk for Sherwin-Williams because a large part of its business is tied to housing, construction, and industrial activity, all of which are sensitive to the broader economic environment. When interest rates are high, inflation is elevated, or economic growth slows, demand for paint and coatings can weaken as fewer homes are built, fewer homes are sold, and businesses reduce spending on maintenance and new projects. One of the most important drivers is the housing market. Sherwin-Williams benefits from both new construction and repaint activity, but both are currently under pressure. High mortgage rates and affordability challenges have reduced existing home sales, and the so-called lock-in effect means homeowners are less willing to move. When fewer homes change hands, repaint activity typically declines as well, which directly impacts demand. At the same time, new residential construction is expected to decline, which further reduces demand for paint and coatings. The commercial segment is also affected. Activity levels remain weak, with indicators such as the Architectural Billings Index pointing to continued softness. This reflects lower investment in commercial projects, as companies delay or reduce spending in an uncertain environment. Similarly, the industrial side of the business is under pressure. Manufacturing activity has been weak across several regions, with contraction in the United States, Europe, and parts of Asia. When industrial production slows, demand for coatings used in manufacturing, packaging, and maintenance also declines. Consumer behavior is another important factor. The DIY segment is more exposed to consumer sentiment, which remains cautious. When consumers feel uncertain about the economy or their personal finances, they tend to delay home improvement projects. Sherwin-Williams has already seen soft DIY demand in North America, and this trend may continue if confidence remains low. Looking ahead, the company itself expects the demand environment to remain challenging, with limited support from housing, commercial construction, and industrial activity. Forecasts for key indicators such as home sales, manufacturing activity, and consumer spending remain uncertain, and in many cases point to slow or flat growth. As a result, macroeconomic factors are likely to remain a headwind in the near term and could continue to impact both sales growth and profitability until the broader environment improves.

Competition is a risk for Sherwin-Williams because the paints and coatings industry is highly competitive and fragmented, with many players competing across different regions, customer groups, and product categories. The company faces competition from large global companies, regional leaders, and smaller specialized players, all of which compete on factors such as price, product quality, innovation, service, and distribution. This creates constant pressure to maintain its position across multiple markets. One of the main risks comes from pricing. Some competitors have lower cost structures or operate in regions where they can produce more cheaply, which allows them to offer more aggressive pricing. In a weaker demand environment, competition often becomes more intense, as companies focus on winning volume rather than protecting margins. Sherwin-Williams has itself described the current environment as highly competitive, where companies are actively chasing volume. If competitors lower prices or offer better terms to customers, Sherwin-Williams may need to respond, which can put pressure on margins and profitability. Competition also varies across the company’s different segments. In the Paint Stores Group, Sherwin-Williams competes not only with other paint manufacturers but also with large home improvement retailers, hardware stores, and independent dealers. These competitors often carry multiple brands and may use promotions or pricing strategies to attract customers. In the Consumer Brands Group, the company competes directly with both branded and private label products sold through the same retail channels. Private label products in particular can compete on price, which can pressure volumes or margins. In the Performance Coatings Group, Sherwin-Williams competes with both large international players and smaller niche companies that focus on specific applications and may be more flexible or specialized. Another important aspect is innovation and product development. Customer preferences are evolving, especially with increasing demand for more environmentally friendly and sustainable products. Smaller or more focused competitors may be able to move faster in developing these types of products, while larger competitors may invest heavily in research and development. If Sherwin-Williams fails to keep pace with these developments, it could lose share in certain product categories or customer segments. Distribution and customer relationships are also competitive factors. While Sherwin-Williams has a strong position with its company-owned store network, competitors are constantly trying to improve their own distribution, whether through partnerships with retailers, direct sales, or digital channels. If competitors succeed in improving access or service, it could weaken Sherwin-Williams’ advantage over time.

Raw material prices and availability are a risk for Sherwin-Williams because the company relies heavily on a range of key inputs such as resins, solvents, latex, titanium dioxide, and various additives to produce its paints and coatings. These materials are sourced globally, and their cost and availability are influenced by factors that are largely outside the company’s control. One of the main risks is volatility in raw material prices. Many of the inputs used by Sherwin-Williams are derived from petrochemicals, which means their prices are closely linked to oil and natural gas markets. When energy prices rise, the cost of producing these materials typically increases as well. In recent years, the company has experienced periods of sharp cost inflation driven by supply chain disruptions, tariffs, and broader global events. Even looking ahead, management expects raw material costs to increase again, partly due to tariffs and inflation in certain categories such as packaging, pigments, and resins. Availability is another important factor. While raw materials are generally available from multiple sources, there are cases where Sherwin-Williams depends on a limited number of suppliers. If one of these suppliers reduces capacity, shuts down production, or faces operational issues, it can be difficult to quickly find alternatives. This can lead to delays in production or force the company to source materials at higher prices or lower quality, which can affect both costs and operations. Global supply chains add another layer of risk. Sherwin-Williams sources materials from different regions around the world, including areas that may be affected by political instability, trade restrictions, or logistical disruptions. Events such as wars, tariffs, or shipping disruptions can reduce supply and increase costs. Even if the company itself does not operate in those regions, it can still be affected through its supply chain. Another challenge is the timing of price increases. Sherwin-Williams does have pricing power and has historically been able to pass on higher costs to customers. However, there is usually a delay. If raw material costs increase quickly, the company may not be able to raise prices immediately, which can put pressure on margins in the short term. This is especially relevant in a weaker demand environment, where customers may be more sensitive to price increases.

Reasons to invest

Favorable trends for future housing demand are a reason to invest in Sherwin-Williams because a large part of its business is tied to residential construction and home improvement, both of which are supported by strong long term structural drivers. While the housing market has been weak in the short term due to higher interest rates, the underlying demand has not disappeared. Instead, it has been delayed, which creates a backlog of activity that is likely to return over time. One of the most important drivers is the imbalance between housing supply and demand. For many years, the United States has built fewer homes than needed to keep up with population growth and replacement of older housing stock. This has created a structural shortage of several million homes. Estimates suggest that around 1,5 million homes need to be built each year to close this gap, but construction has consistently fallen short of that level. This means that future demand is not only dependent on economic growth, but also on catching up to years of underbuilding, which supports long term demand for construction materials such as paint and coatings. Another important factor is household formation. People continue to form new households through life events such as moving out, getting married, or having children. Household formation in the United States has remained strong, and these changes eventually lead to housing activity, even if they are delayed by higher mortgage rates. When affordability improves or buyers adjust to the current rate environment, this pent up demand can return relatively quickly. The aging housing stock is also a key driver. The average home in the United States is now around 40 years old, which increases the need for maintenance, repainting, and larger renovation projects. Even in periods where fewer homes are sold, homeowners still need to maintain and upgrade their properties. In fact, when people choose not to move because of high mortgage rates, they often invest more in improving their existing homes. This supports demand for paint and coatings, as repainting is one of the most affordable and visible ways to update a home. There are also signs that housing activity can respond even to modest improvements in conditions. When mortgage rates recently moved slightly lower, Sherwin-Williams observed an increase in existing home sales. This suggests that demand is still there and can return without requiring a full normalization of interest rates. In addition, repaint demand tends to follow a cycle, with homes typically being repainted every five to seven years. Strong activity in earlier years can create a temporary slowdown, but it also sets up future demand as homes eventually require maintenance again.

New stores are a reason to invest in Sherwin-Williams because they directly support long term growth, strengthen the company’s competitive position, and contribute to higher profitability over time. The company plans to open 80 to 100 new stores across the United States and Canada in 2026, which shows that management continues to see attractive opportunities to expand its footprint, even in a more challenging demand environment. One of the main reasons this matters is that new stores are primarily part of the Paint Stores Group, which is the company’s most important and most profitable segment. These stores sell directly to professional contractors, where Sherwin-Williams has strong pricing power and close customer relationships. As this segment grows, it tends to lift overall margins, because selling through its own stores is more profitable than selling through third party retailers. The strategy behind opening new stores is also very disciplined. Sherwin-Williams does not open stores randomly but uses data and local market insights to identify areas with increasing demand and customer density. The goal is to be close to where contractors are working, which makes it easier for customers to access products quickly. This proximity is important because contractors value convenience and speed, and being closer to the job site can make a meaningful difference in their daily operations. A denser store network also strengthens customer relationships. Sherwin-Williams stores are not just points of sale. They provide service, advice, and support, which makes them an important part of the contractor’s workflow. When new stores are added, it becomes easier for customers to stay within the Sherwin-Williams ecosystem, which increases loyalty and repeat business. Over time, this can lead to higher share of wallet from existing customers. Another important aspect is that new stores can be profitable even in a weaker demand environment. Sherwin-Williams has shown that it can still grow margins in its Paint Stores Group despite lower volumes, mainly due to strong cost control and the economics of its store network. Once a store is established, it does not require large ongoing investments but continues to generate revenue, which supports attractive returns over time. The company also has the operational capabilities to execute this strategy. It has experience opening stores at scale, supported by established systems, trained employees, and a strong culture. This allows Sherwin-Williams to continue expanding without losing efficiency or service quality. Low employee turnover in stores further supports consistency, which is important for maintaining strong customer relationships.

Innovation is a reason to invest in Sherwin-Williams because the company continuously develops new products, technologies, and digital tools that help it maintain its competitive position and support long term growth. In the paints and coatings industry, customer needs evolve over time, whether it is better durability, faster application, improved sustainability, or more efficient workflows. Companies that are able to meet these changing needs are more likely to retain customers and gain market share. One important aspect of innovation at Sherwin-Williams is product performance. The company consistently introduces new and improved coatings that solve specific problems for customers. For example, products like Gallery Series waterborne systems are designed to deliver factory like finishes on cabinets and trim, while primers such as ProBlock Quick Dry improve adhesion and surface preparation. In other areas, products like SuperDeck wood stains offer protection against UV and water damage, extending the lifespan of outdoor surfaces. These types of improvements may seem incremental, but they add real value for customers by saving time, reducing rework, and improving the final result. Over time, this strengthens customer loyalty and supports pricing power. Innovation is also important in more specialized and industrial applications. Sherwin-Williams develops coatings that serve demanding environments, such as Poly-Crete flooring systems used in food production facilities or protective coatings like Sherplate that help prevent corrosion in water systems. These products are often critical for customers, where performance, safety, and reliability are essential. By offering solutions that meet strict requirements, Sherwin-Williams can build long term relationships and differentiate itself from competitors. Another key area is sustainability. There is growing demand for more environmentally friendly products, and Sherwin-Williams is responding with innovations such as waterborne and plant based coatings. Products like Laqva Top Bio reflect this shift toward reducing environmental impact while maintaining performance. As regulations tighten and customer preferences evolve, the ability to offer sustainable solutions becomes increasingly important for winning business. Digital tools are also becoming a part of the company’s innovation strategy. Solutions such as the Color Expert app use technology to improve the customer experience by helping users choose colors and plan projects more efficiently. While these tools may not drive revenue directly, they strengthen the overall value proposition and make it easier for customers to choose Sherwin-Williams products. Innovation at Sherwin-Williams is not only about launching new products but also about improving how the company operates. The company invests in research and development, as well as in new facilities such as its global technology center, to support continuous improvement across its product portfolio. This helps ensure that it can respond to changes in raw materials, regulations, and customer requirements over time.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 10,26, which is from the year 2025. I have selected a projected future EPS growth rate of 10%. Finbox expects EPS to grow by 9,9% in the next five years. Additionally, I have selected a projected future P/E ratio of 20, which is double the growth rate. This decision is based on Sherwin-Williams's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $131,56. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Sherwin-Williams at a price of $65,78 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 3.452, and capital expenditures were 798. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 559 in our calculations. The tax provision was 770. We have 246,5 outstanding shares. Hence, the calculation will be as follows: (3.452 – 559 + 770) / 246,5 x 10 = $148,60 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Sherwin-Williams' free cash flow per share at $10,77 and a growth rate of 10%, if you want to recoup your investment in 8 years, the Payback Time price is $135,48.

Conclusion

I believe that Sherwin-Williams is an intriguing company with good management. It has built its moat through its brand strength, vertical integration, scale, and deep customer relationships. The company has consistently achieved a high ROIC above 15% in most years, which is a trend that is expected to continue moving forward. Sherwin-Williams delivered its highest free cash flow ever in 2025, and while free cash flow may be volatile year over year, it is expected to continue to grow over the long term. Macroeconomic factors are a risk for Sherwin-Williams because its business is closely tied to housing, construction, and industrial activity, all of which slow down when interest rates are high and economic conditions are weak. This can lead to lower demand for paint and coatings as fewer homes are built or sold, projects are delayed, and consumers and businesses reduce spending. Competition is a risk for Sherwin-Williams because it operates in a highly competitive and fragmented industry where companies compete on price, product quality, innovation, and distribution. Stronger pricing from competitors or failure to keep pace with innovation and customer needs could lead to lost market share and pressure on margins and profitability. Raw material prices and availability are a risk for Sherwin-Williams because it relies on globally sourced inputs whose costs can fluctuate with energy prices, tariffs, and supply chain disruptions. If prices rise quickly or materials become harder to source, the company may face higher costs and short term margin pressure before it can pass those increases on to customers. Favorable trends for future housing demand are a reason to invest in Sherwin-Williams because long term drivers such as a structural housing shortage, strong household formation, and an aging housing stock support sustained demand for construction and home improvement. Even though activity has been delayed by higher interest rates, this creates pent up demand that is likely to return over time and benefit the company. New stores are a reason to invest in Sherwin-Williams because they drive long term growth while strengthening its most profitable segment and improving margins. By expanding its store network closer to customers, the company increases convenience, builds stronger relationships, and captures more demand within its own ecosystem. Innovation is a reason to invest in Sherwin-Williams because continuous improvements in products, sustainability, and digital tools help the company meet evolving customer needs and maintain its competitive position. This supports customer loyalty, pricing power, and long term growth. I believe there are many things to like about Sherwin-Williams, and buying shares at the Ten Cap price of $148 could be a good long term investment.

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