It's never too late to invest in an exceptional stock. Just ask multibillionaire Warren Buffett, whose holding company, Berkshire Hathaway, opened a stake in Pool Corp. (POOL 0.94%) in the third quarter of last year. The world's largest wholesale distributor of swimming pool equipment, parts, and supplies has already made shareholders quite wealthy.
The stock has returned over 42,000% over its lifetime.
What has made Pool Corp. such a successful investment, and should you buy the stock now? Here is what you need to know.
Pool Corp. serves more than 125,000 wholesale customers. Most of its business is in the United States, but the company also operates in Canada, Mexico, Europe, and Australia.
A swimming pool is a significant investment, especially an in-ground pool, which can cost over $100,000 to build and install. Pool Corp. generates revenue from three aspects of pool ownership:
A key aspect of Pool Corp.'s business model is that each new pool generates a recurring revenue stream, which represents a larger portion of the business as Pool Corp. installs more pools. Recurring revenue from supplies and maintenance was 65% of 2024 sales, up from 60% in 2014.
There are more than 11 million bodies of water in the United States alone, including 5.4 million in-ground swimming pools. Pool Corp. has a competitive advantage as the leader in this fragmented industry, routinely acquiring small competitors to expand its market share.
Pool Corp. generates more cash flow as the business grows larger and profit margins expand. The company requires minimal investment, so management allocates most of its cash flow to stock buybacks and dividends, thereby further boosting earnings per share and investment returns.
It's a wheel that spins round and round, generating remarkable results for shareholders over the years.
Swimming pools are a luxury purchase for most, so new pool installations, the first spoke in that spinning wheel, are susceptible to economic forces. Consumer sentiment declined over the past year, and the situation has worsened with higher interest rates, which increased borrowing costs and could slow home construction, key drivers of new pool installations.
While Pool Corporation saw sales and profits decline year over year in the first quarter of 2025, management provided some positive news by affirming the full-year earnings guidance it had set in Q4 2024. That could change later if the economic climate deteriorates. Still, it's reassuring that management felt confident enough to affirm guidance just before the peak swimming pool season kicks off in Q2 and Q3.
Management anticipates 2025 earnings of $11.10 to $11.60 per share, up from $11.07 in 2024. Earnings peaked in 2022 at $18.43, driven by COVID-19 lockdowns and stimulus money that fueled a boom in the pool industry. It would be very encouraging for earnings growth to resume this year, considering the state of the economy and high interest rates.
Meanwhile, Pool Corp.'s valuation appears attractive at a time when this proven business is returning to growth. Valuing the stock based on profits is challenging due to the significant fluctuations in the company's financials. However, Pool Corp. is a proven dividend stock. Management takes good care of the balance sheet, and its 14 consecutive annual dividend increases demonstrate its ability to maintain and raise its payout through economic fluctuations.
Pool Corp. yields 1.6% today, its highest in more than a decade. The payout ratio is less than half of management's 2025 earnings guidance, so I would say the higher yield is signaling value in the stock more than business risk.
The short term could remain a bit bumpy, but there is no reason why Pool Corp. won't eventually get back to its winning ways. Yes, Pool Corp. is a buy now.
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