Pool Corporation (POOL - Free Report) has done exceedingly well and emerged as an attractive investment option. This is quite evident from the stock’s performance in the past six months. In the said period, shares of the company have surged 30.9% compared with the industry’s gain of 10.5%.
We believe there is still momentum left in this Zacks Rank #2 (Buy) stock. This is because its 2018 earnings and revenues growth rate are projected at 37.3% and 7.2%, respectively. Moreover, the company’s operational advantages, given its market share and scale along with the solid base business should aid the stock in maintaining a solid performance. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Meanwhile, stocks such as Brunswick Corporation (BC - Free Report) , Callaway Golf Company (ELY - Free Report) and Sturm, Ruger & Company, Inc. (RGR - Free Report) , which belong to the same industry, have witnessed a gain of 0.4%, 18% and 8.2%, respectively, in the past six months.
Lets delve deep to unearth the reasons behind the company’s impressive price performance.
Pool’s market leading position offers a cost advantage, thus allowing it to generate higher return on investment compared with smaller companies. Further, its leadership position enables the company to benefit from the flourishing housing market, which continues to boost the demand for Pool’s products. Although there are numerous competitors and low barriers to entry, the scale of operations offer cost advantages to the company allowing it to build stronger customer relationships.
Thus, we believe Pool is likely to continue capturing market share from regional pool and irrigation distributors, given its economies of scale that drives higher rebates, better sourcing, IT resources and product availability. Additionally, there are opportunities to acquire shares from other distributors that are not company-specific.
Consequently, the company’s plans to penetrate newer geographic locations, expand in existing markets and launch new product categories would further boost its market share. In fact, Pool’s outdoor living products and services exhibited strong performance, with 13% growth in 2017, despite disruptions from recent natural disasters.
Furthermore, Pool generates a large portion of its earnings from the existing pools. While more than half of its gross profits are generated from products related to the maintenance and repair of pools, the remainder is derived from the construction as well as installation of new pools and landscaping. Also, over the past five years, the pool industry has been showing signs of recovery, mostly supported by the gradual improvement in remodeling and replacement activity. In fact, the company’s existing pool business witnessed revenue growth throughout 2015, 2016, and 2017, mainly aided by higher replacement activities. This trend is expected to continue going forward.
Solid Surprise History
Pool has impressed investors with its quarterly results in the preceding quarters. Notably, the company’s earnings have surpassed the Zacks Consensus Estimate in the trailing nine out of ten quarters. Also, first-quarter and 2018 estimates have moved up 12.9% and 15.9%, respectively, over the last 60 days, reflecting an ongoing optimism on the stock.
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