IBD Stock Analysis
- Pool stock is in buy range after bouncing off the 50-day line.
- Shares are also closing in on a new 495.32 buy point.
- The relative strength line remains in an uptrend and near an all-time peak.
Industry Group Ranking
* Not real-time data. All data shown was captured at
1:55PM EDT on
Pool Corp. (POOL) is Monday’s IBD Stock Of The Day as POOL stock is offering two entry points — a high board as well as a low board befitting its status as a member of IBD’s Long Term Leaders portfolio.
The Covington, La., company is the pool industry’s biggest distributor of the full range of equipment, chemicals and construction materials.
It has been on a growth tear that kicked off last spring amid Covid’s stay-at-home imperative.
POOL Stock Analysis
Shares, which are featured in the latest New America, rose 2.2% to 491.56 on Monday, rising to within 1% of its 495.22 all-time high notched Aug. 5.
After breaking out twice earlier this near, POOL stock offers two new entry points.
Last week saw POOL stock dip down to its 10-week and 50-day moving averages. The 50-day and 10-week lines are especially key for POOL stock, as a member of IBD’s Long Term Leaders list. These are stocks that reliably put up healthy earnings and stock market gains. That makes them safe to buy on pullbacks to their 10-week lines.
With Monday’s gain, POOL stock now sits about 4% above its 10-week and 50-day lines, still in buy range.
At the same time, POOL stock is closing in on a 495.32 buy point. This opportunity arises because POOL stock has sketched out a four-weeks-tight pattern. When a stock’s weekly close is within 1.5% of its prior week close, that qualifies as “tight.” When it happens at least three weeks in a row above a prior breakout, that creates an actionable buy point 10 cents above the tight-zone high.
The relative strength line, the blue line in the charts provided that tracks a stock’s performance vs. the S&P 500, remains in an uptrend and near an all-time peak.
POOL stock also is a member of the elite IBD Leaderboard portfolio featuring current market stalwarts.
Analysts expect EPS to surge 60%-plus this year as revenue grows upward of 25%. In both cases, that’s three to four times management’s long-term outlook.
The growth spurt should last for a while. Pool Corp. said on its July 22 earnings call that pool builders and remodelers are booked into 2022.
Beyond that, there are reasons for optimism. High home prices, high temperatures and the ongoing migration from northern states to southern states all should support a healthy amount of pool construction.
What has Wall Street still excited about Pool Corp.’s outlook is that the company isn’t expecting a payback after this growth spurt. Actually, Loop Capital analyst Garik Shmois told IBD that Pool Corp. might even raise its 6%-8% long-term annual revenue growth outlook at the Sept. 15 investor day.
Pool Corp. generates 86% of its revenue from the North American pool industry, with the rest from its Horizon irrigation and landscaping equipment business and expansion overseas.
Pool Industry’s Revenue Visibility
Of that major revenue stream, 60% represents nondiscretionary purchases — things like filters, chlorine and pump replacements needed to avoid turning one’s backyard pool into a health hazard.
Today’s pool construction boom is relative. Some 110,000 in-ground pools are expected to be built this year, up 40% from pre-Covid. But pool construction averaged 170,000 in the years before the 2007-2008 financial crisis.
Construction materials, along with related equipment and tile, generates nearly 20% of Pool’s revenue. Even better, pools built today provide an annuity of sorts for Pool Corp. via nondiscretionary purchases for decades to come.
There’s also a pool refurbishing and remodeling boom going on, providing close to 25% of sales. The timing of such investments is affected by the strength of the economy and housing market. Still, pools generally need to be resurfaced after about 15 years. That means the pool construction boom before the housing crash is now providing a second lift for Pool Corp.
Pool Corp. expects 5%-6% industry inflation this year, as the swimming pool industry deals with its own supply crunch. But that’s good news for Pool, which now has about 40% of the total market and keeps winning market share because it has the scale and supplier relations to make sure customers get what they need.
More high-tech pool equipment, including connected devices controlled from an app, also are providing a lift to sales. As of July, the Department of Energy is requiring pool pump manufacturers to phase out production of most single-speed pool pumps because of low energy efficiency. Since variable-speed pumps cost much more, that could add $30-$40 million in revenue in 2022, Pool says.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
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