MarineMax trades at $31.13 per share and has stayed right on track with the overall market, gaining 13.6% over the last six months. At the same time, the S&P 500 has returned 13%.

Is there a buying opportunity in MarineMax, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

We're sitting this one out for now. Here are three reasons why we avoid HZO and a stock we'd rather own.

Why Is MarineMax Not Exciting?

Appropriately headquartered in Clearwater, Florida, MarineMax (NYSE:HZO) sells boats, yachts, and other marine products.

1. Flat Same-Store Sales Indicate Weak Demand

Same-store sales is a key performance indicator used to measure organic growth at brick-and-mortar shops open for at least a year.

MarineMax’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat.

2. Cash Burn Ignites Concerns

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

MarineMax’s demanding reinvestments have drained its resources over the last two years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 7.7%, meaning it lit $7.74 of cash on fire for every $100 in revenue.

3. Short Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

MarineMax burned through $86.08 million of cash over the last year, and its $1.23 billion of debt exceeds the $224.3 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the company’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns. We remain cautious of MarineMax until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

MarineMax isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 10.3x forward price-to-earnings (or $31.13 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d recommend looking at Uber, whose profitability just reached an inflection point.

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