Yahoo Finance Here's Why You Should Retain Pool Corp (POOL) Stock Now
Pool Corporation POOL is likely to benefit from its base business, remodeling and replacement activities and acquisition initiatives. However, inflationary pressures and a tight labor market are a concern.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Factors Driving Growth
Pool Corp is gaining from the solid performance of its base business segment. In third-quarter 2022, the company’s Base Business segment contributed 96.1% to total revenues. During the quarter, revenues in the Base Business segment increased 10.1% year over year to $1,552.2 million. Elevated demand for non-discretionary maintenance and repair products, continued new pool construction activity and strong renovation and remodel activity benefited the company.
Pool Corp continues to benefit from remodeling and replacement activities. During third-quarter 2022, building materials sales increased 14% year over year. The company is benefiting from strong demand in the construction and remodel markets. Equipment and chemical sales increased 9% and 32% year over year, respectively, in the third quarter. The upside was primarily driven by solid demand for heaters, pumps, filters, lighting and automation. Growth in Chemical sales was backed by a better inventory position concerning trichlor. Given the products’ importance in repair, replacement, new construction and remodeling activities, the continuation of demand will likely boost the top line in the upcoming periods.
Pool Corp focuses on expansion initiatives to boost revenues. The company is foraying into newer geographic locations to expand in existing markets and launch innovative product categories to boost market share. It is trying to grow through various acquisitions. During first-quarter 2022, the company boosted its presence in the DIY segment of the market with the acquisition of Pinch A Penny. The company is optimistic as the acquisition paves the path for penetration into the important DIY pool maintenance customer sector featuring recurring revenue maintenance products for the growing installed base of swimming pools. So far this year, POOL opened seven new franchise locations, thereby strengthening its foothold in the Sunbelt markets.
The acquisitions and the new locations are likely to boost customer relationships and services, enhancing the top line. Backed by its distribution network coupled with operational synergies, the company anticipates acquisitions to contribute approximately 5% to POOLCORP’s total revenues in 2022.
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In the past year, shares of Pool Corp have fallen 38.7% compared with the industry’s 55.6% decline.
Concerns
The COVID-19 pandemic has significantly impacted economic activity and markets throughout the world. During the third quarter, the company’s operations were affected by coronavirus-induced supply chain disruptions and labor constraints. Despite improvement in some areas, the company reported inconsistency in deliveries for certain equipment products. The company stated that the trend (largely caused by global disruptions related to the COVID-19 pandemic) might persist in the near term.
Pool Corp is continuously shouldering higher expenses, which are denting margins. Inflationary cost increases in labor, compensation, facility, freight and technology are leading to higher expenses. During the third quarter, the cost of sales came in at $1,111.7 million, up 14.7% from the prior-year quarter’s level. Selling and administrative expenses increased 17.2% year over year to $239.8 million. We believe the company must work hard to cut expenses to achieve high margins. For 2022, the company anticipates inflationary pressures to be approximately 10%. The company expects increased expenses from tight labor and real estate markets in 2022.
Zacks Rank & Key Picks
Pool Corp currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Consumer Discretionary sector are Hyatt Hotels Corporation H, Crocs, Inc. CROX and Boyd Gaming Corporation BYD.
Hyatt currently carries a Zacks Rank #1. H has a trailing four-quarter earnings surprise of 652.3%, on average. The stock has increased 9.4% in the past year.
The Zacks Consensus Estimate for H’s current financial year sales and EPS indicates a surge of 92.6% and 121.8%, respectively, from the year-ago period’s reported levels.
Crocs currently has a Zacks Rank #2 (Buy). CROX has a long-term earnings growth rate of 15%. Shares of Crocs have plunged 47.6% in the past year.
The Zacks Consensus Estimate for CROX’s 2022 sales and EPS indicates a rise of 51.5% and 23.7%, respectively, from the year-ago period’s levels.
Boyd Gaming carries a Zacks Rank #2. BYD has a long-term earnings growth rate of 12.8%. The stock has declined 5.2% in the past year.
The Zacks Consensus Estimate for BYD’s 2022 sales and EPS indicates growth of 4.4% and 11.7%, respectively, from the year-ago period’s reported levels.
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