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Pool Corp (POOL) Outruns Peers, Surges 31% in a Year's Time
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Pool Corporation (POOL - Free Report) has done exceedingly well and emerged as an attractive investment option amid an intensely competitive leisure industry. This is quite evident from the company’s performance in a year’s time. While the stock has surged 31%, the industry rallied 23.6%.
Apart from Pool, stocks such as Marine Products Corporation (MPX - Free Report) and Clarus Corporation (CLAR - Free Report) have gained 21.7% and 24.7% in a year. However, Lazydays Holdings, Inc. has declined 13.7% in the same time frame.
Let’s delve deeper and find out the reason that kept Pool ahead of its peers.
Expansion Strategy Bodes Well
Pool’s market leading position offers a cost advantage, allowing it to generate higher return on investment than smaller companies. Moreover, its leadership position enables the company to further benefit from the flourishing housing market, which continues to boost demand for Pool’s products. Despite several competitors and low barriers to entry, the scale of operations offer cost advantages to Pool and allows it to strengthen customer relationships.
Meanwhile, the company is focused on strategic expansion. It plans to foray in newer geographic locations, expand in existing markets and launch product categories that should increase its market share. To this end, Pool is banking on various acquisitions. The company completed six acquisitions in the last year.
We believe Pool will continue gaining market share from regional pool and irrigation distributors, given its economies of scale that drives higher rebates, better sourcing, IT resources, and product availability.
Existing Pools Drive Profitability
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 and installation of new pools and landscaping. 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. Notably, 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 moving ahead.
In the first quarter, building materials registered 9% growth with 15% improvement in the commercial category. In addition, pool equipment growth was 7%. This growth momentum in these product categories are expected to continue in the quarters ahead.
Robust Shareholder Return
Pool is committed toward returning more value to shareholders. Apart from share buybacks, there is a dividend distribution program in place. Since 2004, the company has raised its dividend repeatedly. Moreover, the company’s share repurchase program was recently expanded by $150 million. In 2016, 2015, 2014 and 2013, Pool returned almost $228 million, $136 million, $169 million and $128 million, respectively, through stock repurchases and dividends. In 2017, the company repurchased 1.3 million shares at an average price of $108.
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Pool Corp (POOL) Outruns Peers, Surges 31% in a Year's Time
Pool Corporation (POOL - Free Report) has done exceedingly well and emerged as an attractive investment option amid an intensely competitive leisure industry. This is quite evident from the company’s performance in a year’s time. While the stock has surged 31%, the industry rallied 23.6%.
We believe there is still a momentum left in this Zacks Rank #2 (Buy) company. This is because the stock has an earnings growth rate of 38.6% and revenue growth rate of 7.7% for 2018. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Apart from Pool, stocks such as Marine Products Corporation (MPX - Free Report) and Clarus Corporation (CLAR - Free Report) have gained 21.7% and 24.7% in a year. However, Lazydays Holdings, Inc. has declined 13.7% in the same time frame.
Let’s delve deeper and find out the reason that kept Pool ahead of its peers.
Expansion Strategy Bodes Well
Pool’s market leading position offers a cost advantage, allowing it to generate higher return on investment than smaller companies. Moreover, its leadership position enables the company to further benefit from the flourishing housing market, which continues to boost demand for Pool’s products. Despite several competitors and low barriers to entry, the scale of operations offer cost advantages to Pool and allows it to strengthen customer relationships.
Meanwhile, the company is focused on strategic expansion. It plans to foray in newer geographic locations, expand in existing markets and launch product categories that should increase its market share. To this end, Pool is banking on various acquisitions. The company completed six acquisitions in the last year.
We believe Pool will continue gaining market share from regional pool and irrigation distributors, given its economies of scale that drives higher rebates, better sourcing, IT resources, and product availability.
Existing Pools Drive Profitability
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 and installation of new pools and landscaping. 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. Notably, 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 moving ahead.
In the first quarter, building materials registered 9% growth with 15% improvement in the commercial category. In addition, pool equipment growth was 7%. This growth momentum in these product categories are expected to continue in the quarters ahead.
Robust Shareholder Return
Pool is committed toward returning more value to shareholders. Apart from share buybacks, there is a dividend distribution program in place. Since 2004, the company has raised its dividend repeatedly. Moreover, the company’s share repurchase program was recently expanded by $150 million. In 2016, 2015, 2014 and 2013, Pool returned almost $228 million, $136 million, $169 million and $128 million, respectively, through stock repurchases and dividends. In 2017, the company repurchased 1.3 million shares at an average price of $108.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>