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Here's Why Investors Should Retain POOL Stock in Their Portfolio

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Pool Corporation (POOL - Free Report) is likely to benefit from its digital ecosystem, POOL360 platform and expansion strategies. Its commitment to returning value to shareholders bodes well. However, a slowdown in discretionary spending and a rise in operating expenses pose concerns.

Let us discuss the factors that highlight why investors should retain the stock.

Factors Driving POOL Stock

POOL has been steadily investing in its digital ecosystem, which is beginning to pay off. During the second quarter of 2024, the company’s POOL360 platform — a business-to-business service tool — witnessed increased adoption. The platform's contribution came in at 14.5% of the company’s total sales compared with 13% in the prior year period. This underscores its focus on integrating technology to enhance customer convenience and operational efficiency.

POOL’s commitment to digital innovation, including the POOL360 water test tool, allows it to differentiate itself in a competitive market. The initiative not only drives operational improvements but also provides a better customer experience that helps dealers manage their businesses more effectively. As POOL360 continues to evolve, the company is optimistic and anticipates the initiative to strengthen customer relationships and improve overall profitability.

POOL continues to focus on expansion initiatives to drive revenues. The company added eight new sales centers in the second quarter, bringing its total number of locations to 445 globally. The expansion adds convenience and capacity to support growing demand and increases the company’s market penetration. The Pinch A Penny franchise network, a significant growth driver, added three new stores in Texas, further enhancing POOL’s reach in the do-it-yourself maintenance market.

POOL continues to generate strong cash flow, allowing the company to return value to its shareholders. So far this year, POOL has returned $173 million through dividends and share repurchases. During the second quarter, the company increased its quarterly dividend by 9% year over year, marking the 14th consecutive year of dividend growth. It also expanded its share repurchase authorization to $600 million. This strong commitment to shareholder returns highlights POOL’s financial stability and ability to navigate short-term market fluctuations while remaining focused on long-term growth.

Concerns for POOL

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So far this year, shares of POOL have declined 13.6% compared with the industry’s 1.8% fall. A slowdown in discretionary spending coupled with a sharp decline in new pool construction and renovation projects caused the downside.

During the second quarter, the company’s operations were impacted by lower sales volume due to reduced pool construction and deferred discretionary replacement activities. The continuation of economic uncertainty exerts more pressure on new pool starts. For 2024, POOL expects discretionary product volumes (used in swimming pool construction) to decrease 15% to 20% year over year. It expects volumes of products used for remodeling, renovating and upgrading swimming pools to decline by up to 15%.

Another major concern for POOL is its rising operating expenses. During the second quarter, operating expenses (as a % of net sales) increased to 14.6% compared with 13% reported in the prior-year period. The increase was driven by the company’s continued investment in expanding its sales center network and developing new technology tools. While the investments are aimed at long-term growth, they’re putting pressure on margins.

Conclusion

Despite the headwinds, POOL’s long-term outlook remains promising. Its commitment to digital innovation and market expansion, along with a consistent focus on shareholder returns, makes it a stock worth holding onto. While the short-term prospects may be cloudy due to rising costs and slowing consumer demand, POOL’s strategic investments are setting the stage for long-term growth.

For investors looking beyond the near-term economic uncertainty, POOL offers a blend of stability, innovation and a strong financial foundation, making it a valuable asset to retain in your portfolio.

Zacks Rank & Key Picks

Pool carries a Zacks Rank #3 (Hold) at present.

Some top-ranked stocks in the Zacks Consumer Discretionary sector are Royal Caribbean Cruises Ltd. (RCL - Free Report) , DoubleDown Interactive Co., Ltd. (DDI - Free Report) and Monarch Casino & Resort, Inc. (MCRI - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

RCL has a trailing four-quarter earnings surprise of 18.5%, on average. The stock has rallied 60.5% in the past year. The Zacks Consensus Estimate for RCL’s 2024 sales and earnings per share (EPS) calls for growth of 18.1% and 69.9%, respectively, from the year-ago levels.

DDI has a trailing four-quarter earnings surprise of 22.1%, on average. The stock has surged 43.4% in the past year. The Zacks Consensus Estimate for DDI’s 2024 sales and EPS indicates an increase of 12.6% and 15.8%, respectively, from the year-ago levels.

MCRI has a trailing four-quarter negative earnings surprise of 3.5%, on average. The stock has increased 15.4% in the past year. The Zacks Consensus Estimate for MCRI’s 2024 sales and EPS indicates an increase of 2.3% and 10%, respectively, from the year-ago levels.

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