Pool Corporation: New Acquisitions and Strong Financials

Pool Corporation (POOL) is the world’s largest distributor of swimming pool supplies, equipment and related products. The company has seen dramatic growth over the past ten years, which would have turned an initial $10,000 investment into over $220,000. Over the last 5 years earnings have impressively grown 156%. Considering the rapid expansion, POOL still has room to grow and looks attractive at current levels.

Most of the company’s future growth will come from the installed base of swimming pools as evident from PoolCorp’s website.

There are more than 68 million households in the United States with the economic capacity and yard space to own a swimming pool. However, approximately 90% of those households do not have a backyard pool. Based on these statistics, the opportunities for our suppliers, our customers and the Company are significant. PoolCorp is investing in the future to increase the industry’s share of major discretionary expenditures by consumers. Growing the installed base of pools increases PoolCorp’s initial and recurring revenue stream.

PoolCorp recently acquired irrigation and landscape distribution companies Horizon and Wickham, which together, cover 9 western states and Georgia. Through the acquisitions the company plans to penetrate the $3 billion plus landscape and irrigation market. Horizon alone holds 7% of the western region market share. According to Pool’s President and CEO Manny Perez de la Mesa, the company will mesh well with the new acquisitions.

We believe the growth rate for the irrigation and landscape product market to be comparable to that of the pool industry. The organic growth rate will be similar to POOL’s. This market benefits from many of the same positive demographic factors influencing the growth of the pool industry. Strong housing and population growth in the Sun Belt, rising disposable incomes, a tendency to travel less and socialize more at home, and a greater willingness to spend more on the outdoor living environment at their home.

The financials of the business reflect a strong 5-year average for ROC and ROE of 21% and 31% respectively. The book value per share is high as expected with a higher growth company like POOL. The debt level is manageable, which should not lead to any future problems in an economic turn down. The last 5-year earnings growth rate has been 25% per year. Looking forward, 17% growth per year for the next 5 years is a realistic goal for the company.

Management appears to find the stock very attractive at current levels. The Board of Directors recently approved an additional $50 million open market share repurchase plan. The company just finished the purchase of $50 million in shares over the previous two quarters. In addition, insiders have been scooping up shares on their own between June and August. Five insiders have purchased shares over this time period at an average price of about $39 per share. The stock price currently sits at $39.30, off from its 52-week of $50.20.

Overall, Pool Corporation is a solid business with a management team focused on shareholder value. The Horizon acquisition will aid in the expansion of earnings growth and will help the company maintain 17% earnings growth for several years. The stock should not have a problem doubling over the next 5 years. Patient investors should wait this one out poolside.

POOL 1-yr chart:

The author does not own a position in this stock.

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Comments

[ChristopherLaudani]

Brian - I understand you believe this company is a 'value', but as someone who's been short POOL, i've gotta tell you, you need to re-examine your thesis.