Pool Corp

Pool Corp (POOL) is the world's largest wholesale distributor of swimming pool supplies and equipment, benefiting from a dominant distribution network and strong relationships with contractors. The company has a history of high returns on capital and strong free cash flow. Recent insider buying indicates confidence in the company's future. The thesis suggests that as oil prices drop and inflation cools, the housing sector may recover, which would positively impact Pool Corp's growth tied to new pool construction and remodeling. The expansion of its share repurchase program and a dividend increase further demonstrate disciplined capital allocation.

Pool Corporation (POOL) is facing significant challenges as it has been in a long-term slump post-COVID, primarily due to the unwind of shortage-driven chlorine pricing and a decline in pool construction. Despite being a dominant player with 35-40% market share, the company is now selling for 15.5x forward earnings, which appears too low for a high-quality market leader. The risks include macro softness affecting pool construction and increased competition from Heritage Pool Supply, which is backed by Home Depot. The external environment has changed unfavorably for POOL, suggesting potential further declines in valuation.

We reinitiated a position in Pool Corp, a distributor of equipment, chemicals and other supplies for both the pool and landscaping trades. The base of existing pools and their required upkeep and maintenance provides the company with a steady stream of business. However, depressed new residential construction and higher interest rates have been a wet blanket over the company’s sales tied to new pool construction. At current levels, we believe shares are attractive based on this new, lower run-rate, and that an upturn in residential (and pool) construction could lead to additional upside.

Pool Corporation is the largest distributor of pool-related products and supplies in North America. We appreciate that the company has never competed solely on price, instead focusing on value and providing the best customer experience. Historically, they have been able to pass on inflationary price increases to their customers, which speaks to their strong pricing power and resilience in the market.