In the early days of the pandemic, people built home swimming pools and shares of Pool Corp. surged. They’ve since fallen, but as Spencerjakab explains, it may be time for investors to dive back in. WSJWhatsNow
once Covid-19 hit, with a total return of 177% between the beginning of 2020 and the stock’s all-time high in November of last year. New pool construction was on its way to smashing a record at the time, with the Pool & Hot Tub Alliance reporting 117,000 inground pools built in North America for 2021. The number would have been higher if not for labor shortages. Pool Corp.’s earnings per share jumped to $15.18 last year compared with $5.83 in 2019, and revenue rose to about $5.
The party is winding down, though. Chief Executive Officer Peter Arvan told investors in October that new pool construction in North America is expected to drop by between 10% and 15% this year. In March the company’s revenue was seen rising again this year to $6.9 billion, according to analysts polled by FactSet, but that forecast has been falling for months and was recently $6.07 billion.
Construction makes up about a fifth of Pool Corp.’s revenue. Another fifth is driven by renovation and remodeling. A lot of renovation occurred in the early days of the pandemic by people who realized they would be spending more time at home and wanted a nicer deck or a new waterslide, but the average North American pool is still about 25 years old. The remainder of Pool Corp.’s revenue is less-discretionary maintenance and repair.
With the stock down 46% since last year’s peak, it is time to retest the water. A combination of an installed swimming pool base that is about 6% higher than before the pandemic and goods inflation of about 30% means that revenue got what is likely to be a permanent boost. Immovable inground pools are unlike leisure categories such as boats, golf clubs or exercise machines that cannibalize future sales following a boom by entering a secondhand market.
Investors seem to have lumped Pool Corp. in with those other Covid beneficiaries, though. Its forward price-to-earnings ratio is now just 18.5 times compared with a 15-year average of nearly 30 times, according to FactSet. And its forward multiple of enterprise value to earnings before interest, tax, depreciation and amortization is 14 times compared with 22 just before the pandemic began.Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved.
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