Amidst a daily fluctuation showing a loss of -2.64%, Pool Corp (POOL, Financial) has demonstrated a 3-month gain of 3.21%. With an Earnings Per Share (EPS) standing at 13.82, investors are keen to understand if the stock is modestly undervalued as suggested by the GF Valuation. This article delves into the intrinsic value of Pool Corp (POOL) to answer this pressing question and to provide a comprehensive valuation analysis that is crucial for informed investment decisions.
Company Introduction
Pool Corp (POOL, Financial) is a leading distributor of swimming pool supplies and related products, catering to around 120,000 customers with both national-brand and private-label products. The company's offerings range from essential pool maintenance items like chemicals and replacement parts to more substantial equipment such as swimming pool kits, cleaners, and lighting systems. With a market cap of $13.30 billion and sales reaching $5.60 billion, Pool Corp operates with an impressive operating margin of 13.76%. The stock price currently stands at $354.12, while the GF Value estimates its fair value at $423.08, indicating that the stock may be modestly undervalued.
Summarize GF Value
The GF Value is a unique metric that determines the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. According to this valuation method, Pool Corp (POOL, Financial) appears to be modestly undervalued. The GF Value Line, which represents the fair value at which the stock should trade, suggests that Pool's stock price will likely oscillate around this value. If the stock price is significantly above the GF Value Line, it could indicate overvaluation, while a price well below may signal undervaluation and potentially higher future returns. Pool's current share price of $354.12 suggests that the stock may indeed be undervalued, offering a promising long-term return potential that could outpace its business growth.
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Financial Strength
Investing in companies with robust financial strength is essential to minimize the risk of permanent capital loss. A glance at Pool's cash-to-debt ratio of 0.06, which is lower than 85.92% of its peers in the Industrial Distribution industry, raises some concerns. Despite this, Pool's overall financial strength has been rated a fair 6 out of 10 by GuruFocus, suggesting a stable financial foundation for the company.
Profitability and Growth
Profitable companies are generally less risky investments, especially those with a history of consistent profitability. Pool Corp has maintained profitability for 10 years, with a strong operating margin of 13.76% that surpasses 89.66% of its industry counterparts. This robust profitability is complemented by significant growth; Pool's 3-year average revenue growth rate is better than 89.29% of the industry, and its EBITDA growth rate of 43.4% ranks higher than 83.33% of the industry players. Such performance indicates a strong potential for continued value creation for shareholders.
ROIC vs. WACC
An effective measure of a company's profitability is the comparison between its Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC). Pool Corp's ROIC of 20.01 is significantly higher than its WACC of 11.1, indicating that the company is efficiently generating cash flow relative to the capital invested, thereby creating value for its shareholders.
Conclusion
In conclusion, the analysis suggests that Pool Corp (POOL, Financial) is modestly undervalued, with fair financial health and strong profitability. Its growth outperforms a significant portion of the Industrial Distribution industry. For a deeper dive into Pool's financials, investors can explore the company's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
