POOL - Embedded Expectations Analysis - 2019 08 19
Pool Corporation (POOL:USA) currently trades above recent averages relative to UAFRS-based (Uniform) Earnings, with a 33.6x Uniform P/E. At these levels, the market is pricing in bullish expectations for the firm; however, management has concerns about weather, demand, and margins.Specifically, management may be concerned about the impact of weather on sales and about the tightening labor supply. Furthermore, they may be concerned about the sustainability of underlying demand in key markets, and may lack confidence in their ability to compensate for retail headwinds during Q1 2019. Moreover, they may be concerned about the sustainability of recent growth in building materials, and may be exaggerating the cost benefit they see from utilizing market-based transportation. In addition, they may be concerned about future price increases from their suppliers, and may be exaggerating the demand they see for outdoor living products. Finally, they may lack confidence in their ability to streamline their showrooms, and may be concerned about the sustainability of recent margin increases.
Pool is a wholesale distributor of swimming pool supplies, equipment and related leisure products and a distributor of irrigation and related products. The company's products include: maintenance products; repair and replacement parts for pool equipment; packaged pool kits including walls, liners, braces and coping for in-ground and above-ground pools; pool equipment and components for new pool construction and the remodeling of existing pools; irrigation and related products; building materials; commercial products; and other pool construction and recreational products, which consist of a number of product categories and include discretionary recreational and related outdoor lifestyle products.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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