Pool Corporation (POOL): A Bull Case Theory

We came across a bullish thesis on Pool Corporation (POOL) on Substack by Douglas Ott. In this article, we will summarize the bulls’ thesis on POOL. Pool Corporation (POOL)’s share was trading at $372.93 as of Dec 6th. POOL’s trailing and forward P/E were 32.01 and 30.96 respectively according to Yahoo Finance.

Aerial view of a swimming pool with outdoor furniture surrounding it.

Pool Corporation (POOL) is navigating a transitional period following the demand surge during 2020 and 2021. As one of the largest distributors of pool supplies and equipment in the U.S. and Europe, Pool experienced a significant pull-forward in demand during the pandemic, when new pool construction peaked at 117,000 in 2021. However, since that high point, new pool construction has steadily declined, with projections for 2024 indicating a nearly 20% drop in new builds. This shift has weighed on Pool’s performance, with quarterly sales growth remaining negative since Q1 2023 and rolling twelve-month EBITDA margins contracting from a peak in 2022 to 12.8% currently. The valuation has also compressed, with the EBITDA multiple declining from a high of 31.3x in 2020 to 19x today.

Despite these challenges, Pool’s long-term fundamentals remain robust. The company derives 86% of its revenues from maintenance and remodeling products, a recurring and resilient segment driven by the growing installed base of pools that require ongoing care. Supplies for new construction, which account for just 14% of revenues, are a smaller, more volatile component of the business. Pool’s management anticipates that the lingering effects of the pandemic-induced demand surge will eventually subside, allowing the company to return to positive sales and margin growth. Over the long term, the pool supply industry is expected to grow at a steady 4%-6% annually, with Pool well-positioned to outpace the market through strategic acquisitions and market share gains.

This recovery trajectory underscores Pool’s attractiveness as a leader in a consolidating industry with significant tailwinds. Though challenging, the current downturn offers patient investors an opportunity to capitalize on Pool’s eventual rebound. With its dominant market position, recurring revenue model, and ability to leverage its scale, Pool is well-suited to benefit from the industry’s long-term growth dynamics. While near-term headwinds persist, the company’s resilient business model and strategic growth initiatives provide a compelling case for long-term value creation.

Pool Corporation (POOL) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 32 hedge fund portfolios held POOL at the end of the third quarter which was 37 in the previous quarter. While we acknowledge the risk and potential of POOL 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 POOL 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.