POOL Shares Gain 23% in 6 Months: Will the Uptrend Continue?
Shares of Pool Corporation POOL have gained 22.5% in the past six months compared with the industry’s increase of 20.4%. The company is gaining from solid expansion efforts, and demand for products to maintain and repair pools.
However, inflationary cost increases in facilities, freight, insurance, IT, advertising and marketing remain concerns.
Let’s delve deeper.
Growth Catalysts
Pool is focused on expansion to drive revenues. It is foraying in newer geographic locations, expanding in existing markets and launching innovative product categories that will boost its market share.
To this end, the company is also trying to expand through various acquisitions. During first-quarter 2022, it boosted its presence in the DIY segment of the market by acquiring Pinch A Penny. POOL stated that it initiated work on chemical sourcing and product management, and is reporting brisk store traffic and solid demand across the platform.
Given the synergies coupled with its robust development pipeline, Pool expects the initiative to drive growth in the upcoming period. During the first quarter of 2023, Pinch A Penny retail sales increased 10% year over year. During the quarter, POOL opened five new franchise locations.
The Zacks Rank #3 (Hold) company generates a large portion of its earnings from existing pools. More than half of its gross profits are generated from products related to maintenance and repair of pools. It derives its remaining gross profits from construction and installation of pools and landscaping.
Over the past five years, the pool industry has been showing signs of recovery, mostly supported by gradual improvement in remodeling and replacement activities. Management believes that flexibility of the new work-from-home norm is likely to act as a catalyst for investments in home improvements.
Pool benefits from the market-leading position that offers cost advantage and allows it to generate a higher return on investment than smaller companies. Further, the housing market continues to boost demand for Pool’s products despite numerous competitors and low barriers to entry. Moreover, solid demand for swimming pool maintenance supplies, above ground pools, spas, automatic pool cleaners, heaters, pumps, lights, chemicals and filters continues to drive the company’s results.
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Concerns
Pool has been witnessing increased expenses lately. Notably, inflationary cost increases in the areas of facilities, freight, insurance, IT, advertising and marketing are leading to higher expenses. During the first quarter, selling and administrative expenses increased 5.9% year over year to $224 million. Operating income declined 38.2% year over year to $145.8 million. The operating margin declined 460 bps to 12.1% from the prior-year quarter’s level.
We believe that the company has to work hard toward cutting expenses to achieve high margins. For 2023, management anticipates inflationary pressures in the range of 4-5%.
Key Picks
Some better-ranked stocks in the Zacks Consumer Discretionary sector are Royal Caribbean Cruises Ltd. RCL, Trip.com Group Limited TCOM and Bluegreen Vacations Holding Corporation BVH, each presently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Royal Caribbean Cruises has a trailing four-quarter earnings surprise of 26.4%, on average. Shares of RCL have surged 195.4% in the past year.
The Zacks Consensus Estimate for Royal Caribbean Cruises’ 2023 sales and EPS indicates rises of 48.5% and 162.9%, respectively, from the year-ago period’s levels.
Trip.com Group has a trailing four-quarter earnings surprise of 147.9%, on average. Shares of TCOM have increased 27.2% in the past year.
The Zacks Consensus Estimate for Trip.com Group’s 2023 sales and EPS implies surges of 102.2% and 334.5%, respectively, from the year-ago period’s levels.
Bluegreen Vacations has a trailing four-quarter earnings surprise of 24.7%, on average. Shares of BVH have gained 35.3% in the past year.
The Zacks Consensus Estimate for Bluegreen Vacations’ 2023 sales and EPS suggests improvements of 3.6% and 17.6%, respectively, from the year-ago period’s levels.
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