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Here's Why Investors Should Retain Pool Corp (POOL) Stock
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Pool Corporation (POOL - Free Report) is likely to benefit from its remodel and replacement activities, robust base business and expansion strategies. However, rise in labor and delivery expenses along with coronavirus-related woes are a concern.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Factors Driving Growth
Pool Corp continues to benefit from the company’s remodeling and replacement activities. During first-quarter 2021, building materials sales increased 34% following growth of 42% and 29% in the fourth and the third quarter of 2020, respectively. Markedly, the company is benefitting from strong demand in construction and remodel markets. In first-quarter 2021, equipment and chemical sales increased 61% and 18% year over year, respectively. The upside was primarily driven by solid demand for heaters, lighting, pumps, filters and pool remodeling. The company believes that the flexibility of the new work-from-home norm is likely to act as a catalyst for investments in home improvements. Also, benefits from the continuation of the de-urbanization trends along with the strengthening of the southern migration are likely.
Also, the company is benefitting from the solid performance of its base business segment. During first-quarter 2021, the company’s base business segment contributed 95.7% to total revenues. During the quarter, revenues from base business increased 50.7% year over year to $1,015.6 million. From the first to the fourth quarter of 2020, revenues from base business increased 13%, 14%, 27% and 39% on a year-over-year basis.
Meanwhile, Pool Corp continues to focus on expansion initiatives to drive revenues. Notably, the company is foraying into newer geographic locations to expand in existing markets and launch innovative product categories to boost its market share. It is also trying to expand through various acquisitions. In this regard, the company is assimilating the TWC Distributors acquisition, thereby expanding the Florida market with nine additional sales centers. Also, it intends to expand the Horizon network in Florida and California markets. We believe that the acquisitions along with the new locations are likely to boost customer relationship and services, thereby enhancing the top line.
Moreover, the company expects robust earnings growth in 2021. It anticipates earnings per share in the range of $11.85-$12.60, up from the prior estimate of $9.12-$9.62. The company anticipates robust demand to continue in 2021. So far this year, shares of Pool Corp have gained 23.1% compared with the industry’s 4.8% growth.
Image Source: Zacks Investment Research
Concerns
Pool Corp is continuously shouldering increased expenses, which have been denting margins. Notably, higher labor and delivery costs and investments in information technology systems and hardware are leading to higher expenses. During first-quarter 2021, cost of sales surged 55.8% from the prior-year quarter’s number. Selling and administrative expenses also increased 17% year over year. In fact, we believe that the company has to work hard toward cutting expenses in order to achieve high margins.
Going forward, risks stemming from resurgence of COVID-19 cases in some markets, new stay-at-home orders or government mandates and unfavorable economic conditions triggered by the crisis are likely to affect the business. The company stated that it expects tougher year-over-year comparisons and industry capacity constraints for the second half of 2021.
Some better-ranked stocks in the same space include Academy Sports and Outdoors, Inc. (ASO - Free Report) , Smith & Wesson Brands, Inc. (SWBI - Free Report) and Sturm, Ruger & Company, Inc. (RGR - Free Report) , each sporting a Zacks Rank #1.
Academy Sports and Outdoors has a three-five year earnings per share growth rate of 4.2%.
Smith & Wesson Brands has a trailing four-quarter earnings surprise of 58.9%, on average.
Sturm, Ruger & Company 2021 earnings are expected to rise 17.9%.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
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Here's Why Investors Should Retain Pool Corp (POOL) Stock
Pool Corporation (POOL - Free Report) is likely to benefit from its remodel and replacement activities, robust base business and expansion strategies. However, rise in labor and delivery expenses along with coronavirus-related woes are a concern.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Factors Driving Growth
Pool Corp continues to benefit from the company’s remodeling and replacement activities. During first-quarter 2021, building materials sales increased 34% following growth of 42% and 29% in the fourth and the third quarter of 2020, respectively. Markedly, the company is benefitting from strong demand in construction and remodel markets. In first-quarter 2021, equipment and chemical sales increased 61% and 18% year over year, respectively. The upside was primarily driven by solid demand for heaters, lighting, pumps, filters and pool remodeling. The company believes that the flexibility of the new work-from-home norm is likely to act as a catalyst for investments in home improvements. Also, benefits from the continuation of the de-urbanization trends along with the strengthening of the southern migration are likely.
Also, the company is benefitting from the solid performance of its base business segment. During first-quarter 2021, the company’s base business segment contributed 95.7% to total revenues. During the quarter, revenues from base business increased 50.7% year over year to $1,015.6 million. From the first to the fourth quarter of 2020, revenues from base business increased 13%, 14%, 27% and 39% on a year-over-year basis.
Meanwhile, Pool Corp continues to focus on expansion initiatives to drive revenues. Notably, the company is foraying into newer geographic locations to expand in existing markets and launch innovative product categories to boost its market share. It is also trying to expand through various acquisitions. In this regard, the company is assimilating the TWC Distributors acquisition, thereby expanding the Florida market with nine additional sales centers. Also, it intends to expand the Horizon network in Florida and California markets. We believe that the acquisitions along with the new locations are likely to boost customer relationship and services, thereby enhancing the top line.
Moreover, the company expects robust earnings growth in 2021. It anticipates earnings per share in the range of $11.85-$12.60, up from the prior estimate of $9.12-$9.62. The company anticipates robust demand to continue in 2021. So far this year, shares of Pool Corp have gained 23.1% compared with the industry’s 4.8% growth.
Concerns
Pool Corp is continuously shouldering increased expenses, which have been denting margins. Notably, higher labor and delivery costs and investments in information technology systems and hardware are leading to higher expenses. During first-quarter 2021, cost of sales surged 55.8% from the prior-year quarter’s number. Selling and administrative expenses also increased 17% year over year. In fact, we believe that the company has to work hard toward cutting expenses in order to achieve high margins.
Going forward, risks stemming from resurgence of COVID-19 cases in some markets, new stay-at-home orders or government mandates and unfavorable economic conditions triggered by the crisis are likely to affect the business. The company stated that it expects tougher year-over-year comparisons and industry capacity constraints for the second half of 2021.
Zacks Rank & Key Picks
Pool Corp carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the same space include Academy Sports and Outdoors, Inc. (ASO - Free Report) , Smith & Wesson Brands, Inc. (SWBI - Free Report) and Sturm, Ruger & Company, Inc. (RGR - Free Report) , each sporting a Zacks Rank #1.
Academy Sports and Outdoors has a three-five year earnings per share growth rate of 4.2%.
Smith & Wesson Brands has a trailing four-quarter earnings surprise of 58.9%, on average.
Sturm, Ruger & Company 2021 earnings are expected to rise 17.9%.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>