Pool Corp. Makes a Splash With Unexpected Valuation

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You may not have heard of Pool Corp. (Nasdaq: POOL), but this company is a long-term stock market superstar.

Pool Corp. is the largest seller of swimming pool parts, supplies and related outdoor living products.

In total, Pool Corp. has more than 400 sales locations in the U.S., Europe and Australia. But 90% of its business is done in the U.S.

When I say the company has been a superstar, I mean it.

Since going public in 1995, Pool Corp.’s stock has gone up an incredible 39,210%!

Chart: Pool Corp.'s Price Change Since 1995
That compares pretty favorably with the 594% return that the S&P 500 has put up over the same time.

A $10,000 investment made in Pool Corp. in 1995 would now be worth a cool $3.9 million!

Chart: Pool Corp.'s Massive Growth
Personally, I never wanted a swimming pool. But my wife and kids wanted one, so I quickly lost that battle.

What I’ve learned since we installed our pool last year is that once you have it, you have created a permanent cash outlay.

We continually need to spend on the chemicals, filters and other supplies needed to keep the pool in swimming shape.

And our pool is brand-new. But after a couple of years, we will be spending on parts replacements and other maintenance.

(My vote was for a cabin, which would have at least appreciated in value!)

For my family, the pool is now a lifetime expense. But for companies like Pool Corp., it’s a lifetime of revenue.

Currently, Pool Corp. owns a 38% share of this cash cow market and has built an incredibly reliable stream of recurring revenue. Its revenue increased from $1.5 billion in 2010 to more than $5.2 billion last year.

Plus, migration trends in the U.S. right now are favorable for Pool Corp. Sun Belt states are expected to see annual population growth of approximately 20% through 2040.

These are the states where pools can be used year-round and where a much higher percentage of homes have one. That means more and more pools will be built.

Pool Corp.’s future revenue growth is going to fund a steadily growing dividend. Its current 1.1% yield doesn’t seem huge, but don’t let that fool you.

The dividend is growing rapidly and has doubled just since 2019.

With a current payout ratio of only 20%, Pool Corp. is being very conservative with the amount of cash that it’s giving back. But this dividend is going to go up for years to come.

In terms of its valuation, Pool Corp. currently trades for just over 18 times 2022 earnings.

For a company that has historically grown and is projecting to continue to grow earnings per share at a midteen percentage clip for a long time to come, this is a very reasonable valuation.

At the current price, Pool Corp. comes in on The Value Meter as “Slightly Undervalued.”

The Value Meter

This is a good one to nibble on a few shares of now and hope that the valuation comes down further if we dip into a recession.

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