The Pool Corporation (NASDAQ: POOL) is one of the most interesting success stories in today’s stock market.
For instance, Pool’s share price rose from $204.40 on 23 April 2020 to $419.53 on 23 April 2021. Thus, POOL’s share price grew by $215.13 in a year.
So what is Pool Corp (POOL) and why does Mr. Market love it? POOLCORP claims to be the world’s largest wholesale distributor of swimming pool supplies and equipment. Pool sells swimming-pool supplies through roughly 120,000 wholesale customers worldwide.
How Far can POOLCORP Grow?
POOLCORP (POOL) is growing at an incredible rate. Stockrow estimates that POOL’s revenues grew by 44.10% in the quarter ending on 31 December 2020.
In detail, Pool’s quarterly revenues grew from $582 million on 31 December 2019 to $1.139 billion on 30 September 2020. However, the quarterly revenue fell to $839 million on 31 December 2020.
Moreover, POOLCORP’s quarterly gross profit grew from $162 million on 31 December 2019 to $239 million on 31 December 2020. Similarly, Pool’s quarterly operating income grew from $25.80 million to $74.25 million in the same period.
In comparison, Pool reported a quarterly gross profit of $373 million on 30 June 2020 that fell to $329 million on 30 September 2020. Similarly, the quarterly operating income fell from $205.86 million in June 2020 to $148.23 million in September 2020.
Why is POOLCORP growing?
The market for POOLCORP’s products is enormous. In fact, Liveaboutdotocom estimates there were 10.7 million swimming pools in the United States in 2019.
In detail, there were 10.4 million residential swimming pools and 309,000 swimming pools in the United States. Similarly, Statista estimates the number of swimming pool construction businesses in the US grew from 13,540 in 2018 to 14,131 in 2020.
The market for luxury products such as swimming pools in the United States is growing because of rising income inequality. America’s rich are getting richer and their numbers are growing.
For example, Statista estimates there were 10.23 million millionaire households in the United States in 2019. Similarly, the number of US millionaires grew by 2.45 million between 2009 and 2019. Consequently Statista estimates there were 5.91 million millionaire households in the United States in 2019.
The Rich Get Richer
Moreover, the top 1% of Americans owned 31% of the nation’s wealth in 2019, Statista estimates. Consequently, there were 80,508 high-net worth individuals in the United States in 2019. Hence, there were 80,508 people who could afford two or more houses with swimming pools.
In addition, the top 20% of America’s population earned 51.9% of the country’s income in 2019, The Balance estimates. The average annual household income of the top 20% was $254,449 which means most of those people can afford a home pool.
Plus, the top 5% of Americans earned 23% of the nation’s income in 2019, The Balance estimates. The average annual household income of the top 5% was $451,122 in 2019.
How COVID-19 grows POOLCORP
Finally, COVID-19 could benefit POOLCORP because high-wage earners are making more money. CNBC estimates high-wage earners’ (over $60,000 a year) incomes grew by 1.2% in 2020.
Thus, the upper classes have more money and a powerful reason not to go to public pools. To explain, many people will fear catching coronavirus at the public pool so they will buy a home pool so they can exercise without going to the gym.
Moreover, people stuck at home in lockdown will want ways to exercise there, and swimming is great exercise. Consequently, more people install home pools or have existing pools serviced.
POOLCORP has little value
Conversely, POOLCORP (POOL) has little value. For example, Pool had just $1.74 billion in total assets on 31 December 2020.
Significantly, POOL had just $34 million and cash and short-term investments on 31 December 2020. Therefore POOL’s business generates a tiny amount of cash. However, POOL has less debt. POOL’s total debt fell from $690 million on 31 December 2019 to $624 million on 31 December 2020.
Consequently, I have to classify POOL as a grossly overpriced stock. I cannot see how a company with only $1.74 billion in total assets is worth $419.53 share.
I advise investors to avoid Pool Corp (POOL) because I think Mr. Market overprices it. I predict that Pool Corp’s share price will collapse.