The first official day of summer was on Friday and everyone is headed to the water to get that base tan started. No better way to start the summer then pitching the world’s largest manufacturer of watersports boats, Malibu Boats (MBUU - Free Report) . Analysts are excited about this small-cap growth opportunity and have been raising EPS estimates over the last 60 days, propelling MBUU into a Zacks Rank #1 (Strong Buy).
Malibu Boats isn’t just riding the wake of the recreational marine industry, they are driving the growth, with continued “innovations in performance, comfort and convenience” that watersports and recreational marine enthusiasts can’t pass up.
Malibu Boats has been making some rather large acquisitions in the marine transportation industry over the past 2 years. They acquired Cobalt for $130 million in mid-2017, expanding their product offering into the luxury recreational boat segment. “The combined business will achieve a run rate of approximately $7.5 million in cost and operational synergies”, according to Malibu Boat’s press release on the matter.
The last quarter of 2018 Malibu Boats acquired Pursuit for $100 million. Pursuit is a leader in the saltwater fishing boat market. “The saltwater outboard fishing market is one of the largest and fastest growing segments in the marine industry”, according to Malibu Boats. This diversifies their portfolio of marine transportation vessels, further boosting their market share in the marine sector.
Synergies from these acquisitions have not been fully materialized and full integration come closer to fruition every quarter. I do not believe that the anticipated growth opportunity has not been fully priced in this stock.
Performance and Valuation
Malibu Boats has shown robust double-digit top-line growth since it went public 5 years ago, with the last few years seeing some of the largest growth figures. MBUU has been profitable since it went public with healthy growth numbers that do not seem to add up to its current valuation.
Malibu Boats is trading at a forward P/E of 9.4x which is well below its median and leisure & recreation sector’s P/E of more than 14x. This is an unprecedented multiple for a firm that is expected to expand its sales by 36% this year and boost its EPS by 40%.
MBUU has seen almost 200% growth over the past 3 years but has traded sideways since the 2nd quarter of 2018.
Malibu Boats is a solid summer buy with its robust growth figures, discounted valuation and increasingly optimistic analysts. Cobalt and Pursuit are still being integrated into Malibu Boat’s business and as they do we should expect margins to gradually expand as synergies materialize.
That being said there is some substantial risk in the high beta MBUU, considering that we are nearing the end of our economic cycle. Malibu Boats have a hefty price tag and will not see the same sales in an economic downturn as discretionary spending dries up.
Analysts are predicting that MBUU has another 2 or 3 years of runway before they see any negative economic exposure, based on current economic indicators. I will be adding this to my summer portfolio but only a limited weight considering the risk.
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