We came across a bullish thesis on Leslie’s, Inc. (LESL) on Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on LESL. Leslie’s, Inc. (LESL)’s share was trading at $2.14 as of Jan 22nd. LESL’s trailing P/E was 151 according to Yahoo Finance.
Leslie’s (LESL), the only nationwide retail pool supplies store in the U.S., operates over 1,000 locations strategically positioned near most swimming pools, especially in the Sunbelt. The company has built a niche serving both small pool service providers and DIY homeowners by providing chemicals and parts, creating a recurring revenue model that, in theory, should command a higher valuation. However, Leslie’s has faced challenges since its 2019 IPO, including negative shareholder equity, declining revenue, and rising interest expenses. Despite these issues, the company’s tangible book value has improved significantly, rising from negative $880 million to negative $177 million in five years, while its share count has declined by 4.5%. This indicates value creation, even as the stock trades at a distressed valuation of $2.19.
Under new leadership, Leslie’s is undergoing a transformation. CEO Jason McDonell, with a background in omnichannel rollouts at Advance Auto Parts and a long tenure at PepsiCo, is focusing on revitalizing the business by emphasizing retail fundamentals and loyalty program optimization. The management overhaul, which includes a refreshed C-suite and half of the board, reflects a critical pivot point for the company. While it remains uncertain whether McDonell can deliver, the timing aligns with potential macroeconomic tailwinds. A cyclical recovery, driven by deregulation, falling interest rates, and increased consumer spending, could boost demand for pools and associated maintenance, creating a pathway back to Leslie’s prior peak revenue of $1.5 billion in 2022.
Leslie’s financial position has stabilized following a debt refinancing out to 2028, with the company now prioritizing debt repayment. Interest expense has surged to $70 million annually, but with positive free cash flow, cash reserves have increased, and long-term debt has slightly declined. Ariel Investments, LLC, which owns 25% of Leslie’s and recently increased its stake, provides confidence in the turnaround, though it lacks board representation or activist influence. At the current price-to-sales ratio of 0.30x, Leslie’s trades at a deep discount. A return to $1.5 billion in revenue and a modest rerating to 0.50x sales could push the stock to $4.05 by 2026. With management execution and potential share buybacks, Leslie’s could achieve a 1.50x price-to-sales ratio within five years, reaching $12.85 per share by 2029—a fivefold increase from current levels, offering compelling upside for patient investors.
Leslie’s, Inc. (LESL) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 25 hedge fund portfolios held LESL at the end of the third quarter which was 21 in the previous quarter. While we acknowledge the risk and potential of LESL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LESL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.