We came across a bullish thesis on Malibu Boats, Inc. (MBUU) on Substack by jared lucich. In this article, we will summarize the bulls’ thesis on MBUU. Malibu Boats, Inc. (MBUU)’s share was trading at $30.94 as of March 12th. MBUU’s trailing and forward P/E were 7.34 and 8.26 respectively according to Yahoo Finance.
A colorful fleet of recreational fiberglass powerboats in full sail.
Malibu Boats presents a compelling investment opportunity as a high-return business that has consistently grown earnings per share at a 30% CAGR since 2015. Despite this strong track record, the stock trades at just six times normalized free cash flow, reflecting a sharp 34% decline over the past year and nearly 60% from its 2021 highs. As the leading U.S. manufacturer of recreational powerboats, Malibu operates across three segments: Malibu, Cobalt, and Saltwater Fishing. The Malibu segment, which contributes 45% of sales, dominates the wakeboard boat market, while Cobalt leads in the 24’-29’ sterndrive category. Malibu’s expansion into the outboard segment has positioned it as the second-largest player in the 23’ fiberglass outboard market. A key differentiator is its vertical integration, which allows Malibu to offer boats at a 20% discount to competitors while maintaining strong margins. The company’s capital-light business model and longstanding dealer network provide further stability, making Malibu well-positioned for the next upcycle.
The recent downturn in Malibu’s stock price has been driven by both macroeconomic and company-specific factors. The COVID-era surge in boat demand pulled forward years of sales, and rising interest rates have significantly increased the cost of boat financing, leading to a sharper-than-expected industry downturn. Malibu has also faced three major challenges in 2023: the abrupt resignation of its long-time CEO, a significant dealer bankruptcy and lawsuit alleging channel-stuffing, and a dramatic decline in wake boat demand, with unit volumes falling 75% year-over-year in Q4. Despite these headwinds, Malibu’s fundamentals remain strong. The company has zero debt, is aggressively repurchasing shares at $10 million per quarter, and insider buying across the boating industry suggests confidence in a recovery.
The market’s current pricing implies a far worse future than history suggests is likely. The last wake boat market downturn, following the 2008 financial crisis, saw volumes fall 62% from peak to trough over four years. The current decline has been even steeper, with volumes dropping 65% in just three years. However, historical cycles suggest the industry is at or near the bottom, with recovery likely beginning in 2025 and turning positive by 2026. Unlike the post-GFC period, today’s downturn has been largely driven by high interest rates rather than structural demand weakness, making a V-shaped recovery more likely if rates ease. Industry checks confirm that demand at recent boat shows has been strong, with dealers reporting improved customer sentiment in recent months. The market, however, assumes an extended period of stagnation. A reverse DCF suggests that current valuations imply wake boat volumes will stabilize at just 5,500 units—less than half of peak levels—with zero revenue growth. This is overly conservative, as a realistic recovery scenario, with volumes rebounding 62% by 2028 and 70% by 2032, points to substantial upside.
Beyond cyclical recovery, Malibu’s long-term growth will be driven by market share gains in the outboard segment, a factor that the market continues to underestimate. The outboard market is the largest and most stable segment, representing 35% of new boat sales annually. Historically, Malibu focused on performance and sterndrive boats, but through acquisitions of Pursuit and Maverick Boat Group, it has successfully expanded into outboards. The company now holds an 18.8% share of the fiberglass outboard market and a 3% share of the overall outboard segment. Malibu has a history of gaining market share, with its core brands expanding by 5.5% and 6.7% over the past decade. This success has been driven by its superior vertical integration and advanced technology offerings, both of which will continue to support further gains. As the industry recovers, Malibu’s presence in the outboard segment should accelerate its revenue growth beyond pre-COVID trends.
Currently, Malibu trades at 11x next-twelve-months (NTM) P/E, which is in line with its 10-year historical average of 12x but at a significant discount to competitor MCFT, which trades at 15x. Historically, Malibu has traded at a premium to MCFT, and this recent discount is largely due to legal overhangs and management uncertainty—both of which are likely short-term issues. Looking out to 2027, Malibu trades at just 6x projected earnings and free cash flow, assuming a return to normalized operations, revenue growth in line with pre-COVID levels, and stable EBITDA margins. A probability-weighted valuation approach supports a base case price target of $60, implying a 70% return over two years. Even in a worst-case scenario where volumes and margins do not recover, downside risk remains relatively limited, leading to an attractive 2.3x risk-reward skew.
Risks to the thesis include a prolonged downturn due to persistent inflation and sustained high interest rates, which could delay recovery. However, early signs suggest industry stabilization, with Q1 2025 revenue declines moderating and volume contractions already exceeding those seen during the Global Financial Crisis. Another concern is affordability, as wake boat prices have risen substantially. However, Malibu primarily serves affluent buyers who are less price-sensitive, and the shift from wakeboarding to wakesurfing has maintained overall demand.
Several catalysts could drive a re-rating of Malibu’s stock. Potential interest rate cuts would lower financing costs for both dealers and consumers, while a more pro-business regulatory environment could support industry growth. Additionally, as the industry returns to normalized demand, Malibu’s share buybacks will continue to enhance shareholder value. A new CEO, alongside the resolution of legal overhangs, could further strengthen operations, particularly given prior concerns about the previous management team. Insider buying across the boating sector reinforces confidence in a cyclical recovery. With the worst quarter of year-over-year declines now behind it, Malibu is poised to deliver positive revenue growth, supported by a replacement cycle from COVID-era boat purchases. This presents a highly attractive entry point for investors looking to capitalize on the stock’s current mispricing.
Malibu Boats, Inc. (MBUU) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 16 hedge fund portfolios held MBUU at the end of the fourth quarter which was 11 in the previous quarter. While we acknowledge the risk and potential of MBUU 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 MBUU 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.