Amidst the worsening Covid-19 pandemic, U.S. consumers have had no choice but to limit time spent outside their homes. Instead, daily expenditure allowances inevitably went to take-out, home improvement, at-home entertainment and savings accounts.
One often-overlooked beneficiary in the home improvement space would be pool companies.
Started in 1993, Pool Corporation (POOL, Financial) now has a $10.8 billion market cap and is the world’s largest wholesale distributor of swimming pool supplies and related products. The Covington, Louisiana-based company sells swimming pool supplies and equipment, with products ranging from in-ground and above-ground swimming pools to chemical and fertilizer products, irrigation system installations and other pool maintenance services.
Pool Corporation has also proven capable of taking hits in industry downturns. The company remained steadfast during the previous 2007-2009 recession, even remaining profitable and even raising its dividend.
In the first quarter that ended in March, Pool Corp. reported a 13% growth in sales and a 5.3% narrowing of the profit margin. Pool Corp. also recorded a goodwill impairment charge related to its business in Australia, as well as impairments from pandemic-related costs. The management did state that it saw its sales begin to level off when stay-at-home orders were being issued in mid-March.
Unlike most publicly-listed companies, Pool did not pull its guidance for the year, but it did widen its earnings-per-share estimates for the year to a range of $5.45 to $6.05.
Given the fact that consumers are now less likely to book a plane ticket to travel and go abroad, they will likely spend most of this summer vacation out at their backyards and may make adjustments to the new normal. More park leisure and indoor activities may lead to further home maintenance demand. For those who have swimming pools, pool maintenance service is unavoidable.
In my view, Pool Corp.'s historical performance, solid recurring revenue base and potential spike in demand as more people stay at home for the summer make it a strong investment, though potential buyers should beware the eye-watering valuation. It trades at a forward price-earnings ratio of 47 and a price-book ratio of 31, both of which are at all-time highs.
Disclosure: No shares in any of the companies mentioned.
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