Despite a daily price drop of 2.82% and a 3-month loss of 2.41%, Pool Corp (POOL, Financial) maintains an Earnings Per Share (EPS) of 12.78. This raises an important question for investors: is Pool fairly valued at its current market price? This analysis delves into Pool's valuation to provide a clearer picture.
Company Overview
Pool Corp distributes swimming pool supplies and related products to roughly 120,000 customers, including pool builders, independent retail stores, and service companies. The company's diverse product range spans from essential maintenance items like chemicals and replacement parts to major pool equipment such as heaters and pumps. With a market cap of $14.30 billion and annual sales of $5.50 billion, understanding Pool's intrinsic value becomes crucial for investors.
Currently, Pool's stock price stands at $372.27, closely aligned with its GF Value of $370.06, suggesting that the stock is fairly valued. But what does this mean for potential investors? Let's explore further.
Understanding GF Value
The GF Value is a unique measure, estimating a stock's intrinsic value based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. For Pool, the GF Value suggests a fair market price based on these comprehensive factors. This valuation implies that the stock price should gravitate around this value, indicating minimal over or undervaluation at its current level.
Given Pool's alignment with its GF Value, the expected long-term return should closely mirror the company's business growth rate, barring significant market fluctuations or company-specific events.
Financial Strength and Stability
Investing in a company with robust financial health is crucial to mitigate risks of capital loss. Pool's cash-to-debt ratio of 0.05, although lower than many of its industry peers, still supports a GuruFocus financial strength rating of 7 out of 10. This suggests a fair level of financial stability, which is critical for long-term investment considerations.
Profitability and Growth Prospects
Pool has demonstrated consistent profitability, a vital indicator of less risky investments. With an operating margin of 13.01%, Pool outperforms 88.19% of its industry counterparts. Additionally, the company's 3-year average revenue growth rate surpasses 65.25% of global competitors, paired with a strong EBITDA growth rate of 18.7%. Such figures not only reflect Pool's profitability but also its potential for future growth.
Investment Efficiency: ROIC vs. WACC
An effective way to gauge investment efficiency is by comparing the Return on Invested Capital (ROIC) against the Weighted Average Cost of Capital (WACC). Pool's ROIC of 19.13 significantly exceeds its WACC of 11.21, indicating efficient capital use that generates higher returns than the cost of capital, a positive sign for investors.
Conclusion
Overall, Pool Corp appears to be fairly valued, considering its current market price, financial health, profitability, and growth prospects. For investors looking for stable long-term returns aligned with business growth, Pool presents a compelling case. To explore more about Pool's financials, visit its 30-Year Financials here.
To discover other high-quality companies that may offer above-average returns, check out the GuruFocus High Quality Low Capex Screener.
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.
