The market for new swimming pools is weak, but the company is doing what it can to create value.
Shares of Pool (POOL 1.68%) dropped 10.2% in April, according to data provided by S&P Global Market Intelligence. The swimming pool supply stock drifted lower throughout the month, following the downward trend for the S&P 500 index. But late in the month it reported financial results of its own that contributed to its monthly losses.
On April 25, Pool reported financial results for the first quarter of 2024, showing net sales of $1.1 billion. The problem is this was a 7% year-over-year drop, which is something that investors didn’t want to see even though other financial metrics looked good.
Most analysts looked at Pool’s Q1 top-line numbers and lowered their price targets for the stock as a result. For example, Oppenheimer analyst Scott Schneeberger lowered his price target for Pool stock from $436 per share to $416 per share, citing weak demand for its products, according to The Fly.
To be fair to Schneeberger and other analysts, Pool’s revenue peaked back in 2022. While the company’s revenue is strong at over $1 billion, investors and analysts want to see growth, and they just aren’t seeing it right now. That’s why the stock is down.
Pool is still a healthy business
Historically, Pool’s revenue is fairly resilient because swimming pool owners regularly spend for maintenance products. But growth comes from swimming pool installations because that’s what expands the market for its products. With interest rates and inflation higher than they’ve been in recent years, that leaves less money for putting in a pool, which hurts Pool’s growth.
But Pool is still doing impressive things with the business it has. The company’s gross margin is holding fairly steady at about 30%, which is slightly higher than it was before the pandemic. Moreover, it just generated record Q1 cash from operations of $145 million. These metrics point to an otherwise healthy business.
A track record investors can get behind
Pool stock may be down about 35% from its all-time high, but it’s still up more than 500% over the last 10 years. A big reason that it’s performed so well is because of its prioritization of returning profits to shareholders.
Over the past year, Pool has paid down almost $400 million in long-term debt, which helps shareholders by making it financially stronger and reducing interest payments. Moreover, the company just increased its share repurchase authorization to $600 million, which is quite big. And it raised its quarterly dividend by 9% to $1.20 per share. Importantly, this is Pool’s 13th consecutive year of paying and raising its dividend.
POOL Average Diluted Shares Outstanding (Quarterly) data by YCharts
Given the ongoing strength in the business and its history of shareholder returns, I believe investors will want to take a closer look at Pool stock in May after its 10% drop in April.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.