Pool Corp (POOL) Up 34% This Year: What Awaits in 2024?
Shares of Pool Corporation POOL gained 33.6% in the year-to-date period compared with the Zacks Leisure and Recreation Products industry’s rise of 19.5%. The company is benefiting from strategic expansions through acquisitions. Also, strength in maintenance and repair activities bode well.
However, weakness in new pool construction-related activities and a challenging macroeconomic environment remain a concern.
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Let’s check the factors supporting positive investor sentiments amid ongoing headwinds.
Growth Catalysts
Pool Corp remains focused on investing in organic growth to enhance future business opportunities. This strategy not only broadens the customer base but also facilitates the introduction of more products and services across existing locations.
In the third quarter, the company established two new greenfield sites, totaling ten fresh locations for the 2023 season, illustrating the company's robust expansion approach and dedication to growth. Alongside these organic launches, the company acquired four new locations this year. Additionally, during the latest quarter, two new franchise customers joined the Pinch A Penny network, bringing the total count of new franchise stores to 11 this year.
POOL derives a significant portion of its earnings from existing pools, with over half of its gross profits coming from maintenance and repair products. The remaining profits stem from pool construction, installation, and landscaping. The pool industry has shown signs of recovery in the past five years, driven by improved remodeling and replacement activities.
Given the products’ importance in repair, replacement, new construction and remodeling activities, the continuation of demand will likely support top-line growth in the upcoming periods.
The company has a long-term earnings growth rate of 10% and currently holds a VGM Score of B, supported by a Growth and Momentum Score of A. POOL’s superior return on equity (ROE) is indicative of its growth potential. The company’s ROE stands at 40% compared with the industry’s 6.7%. This indicates efficiency in using its shareholders’ funds.
Concerns
The company's growth is hindered by softness in new pool construction-related activities and the challenges posed by the current macroeconomic environment. During the third quarter of 2023, the company’s operations were impacted by lower sales volume courtesy of reduced pool construction and deferred discretionary replacement activities. The company anticipates the softness in construction activities to persist for some time.
For the fourth quarter of 2023, the company anticipates quarterly new pool construction sales to decline 5% year over year. In 2023, it expects new pool construction units to fall 30% year over year.
The company is experiencing a recent uptick in expenses, primarily due to inflationary increases in facilities, freight, insurance, IT, advertising, and marketing costs. In the third quarter, operating expenses rose to 15.9% (as a percentage of net sales) from the prior year's 14.8%. Operating income for the quarter declined by 26% year over year to $194.4 million, resulting in an operating margin decrease to 13.2%, down by 310 basis points from the previous year’s levels. POOL needs to focus on expense reduction efforts to achieve higher margins.
Zacks Rank & Key Picks
Pool Corp currently sports a Zacks Rank #3 (Hold).
Here are some better-ranked stocks from the Zacks Consumer Discretionary sector:
Virco Mfg. Corporation VIRC sports a Zacks Rank #1 (Strong Buy). VIRC has a trailing four-quarter earnings surprise of 188.6% on average. VIRC’s shares have surged 170% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for VIRC’s 2024 sales and earnings per share (EPS) indicates a rise of 15.7% and 32.4%, respectively, from the year-ago period’s levels.
Live Nation Entertainment, Inc. LYV flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 37.5% on average. Shares of LYV have increased 32.5% in the past year.
The Zacks Consensus Estimate for LYV’s 2023 sales and EPS indicates a rise of 29.5% and 132.8%, respectively, from the year-ago period’s levels.
Stride, Inc. LRN carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 44.3% on average. Shares of LRN have increased 90.6% in the past year.
The Zacks Consensus Estimate for LRN’s 2024 sales and EPS indicates a rise of 9.1% and 34.7%, respectively, from the year-ago period’s levels.
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Pool Corporation (POOL) : Free Stock Analysis Report
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