Pool Corporation is the world’s largest wholesale distributor of swimming pool supplies, equipment, and outdoor living products, with a business model built on scale, operational efficiency, and a strong distribution network. From its dominant position in the fragmented pool supply industry to its expanding private-label offerings and digital initiatives like the POOL360 platform, the company has established itself as a key player in the long-term growth of the outdoor living market. With favorable demographic trends, a growing installed base of aging pools, and investments in technology and product innovation, Pool Corporation is well-positioned for future expansion. The question remains: Should this industry leader have a place in your portfolio?
This is not a financial advice. I am not a financial advisor and I only do these posts in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.
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The Business
Pool Corporation, founded in 1981 as South Central Pool Supply, is the world’s largest wholesale distributor of swimming pool equipment, parts, and related outdoor living products. The company operates approximately 448 sales centers across North America, Europe, and Australia, distributing over 200,000 products from 2,200 vendors to around 125,000 wholesale customers. While it has a global presence, approximately 93% of its sales come from the United States. Pool Corporation primarily serves contractors, who account for 82% of its sales, and divides its business into three segments: repair and maintenance service, replacement and remodeling, and new pool construction. The repair and maintenance segment accounts for the largest share of revenue at 62%, followed by replacement and remodeling at 24%, and new pool construction at 14%. The significant contribution from maintenance and repair creates a stable and recurring revenue stream. Pool Corporation is about five times larger than its nearest competitor and has built the most extensive and integrated distribution network in the industry, which serves as the foundation of its moat. Its scale allows it to deliver unmatched product availability, logistical efficiency, and customer support. The company benefits from a highly efficient supply chain with four central shipping locations and a fully integrated ERP system, ensuring fast and reliable product delivery to contractors and service providers. The recurring nature of the maintenance and repair segment strengthens its resilience, as maintaining proper pool chemistry and replacing worn-out equipment are essential and non-discretionary expenses. Its size also grants it purchasing power and supplier leverage, allowing it to secure better pricing and exclusive product offerings that smaller competitors cannot match. Technology further enhances Pool Corporation’s advantage. Through its POOL360 and Horizon 24/7 platforms, the company has created a digital ecosystem that streamlines ordering, inventory management, and customer relationship tools for contractors. These innovations improve efficiency for both Pool Corporation and its customers, reinforcing its position in the industry. The pool supply market remains highly fragmented, and Pool Corporation’s financial strength and operational expertise allow it to acquire smaller distributors and expand its market presence. Management believes the company’s scale, execution, and customer-centric approach will enable it to continue gaining share, strengthening its competitive position over time.
Management
Peter D. Arvan serves as the CEO of Pool Corporation, a role he assumed in 2019 after joining the company in 2017. Prior to Pool Corporation, he was the CEO of Roofing Supply Group and held various management positions at SABIC Polymershapes, where he gained extensive experience in distribution and supply chain operations. He holds an undergraduate degree from the State University of New York Institute of Technology. When Peter D. Arvan was introduced as CEO, his deep expertise in managing distribution businesses was highlighted as one of his key strengths. Since taking the helm, Pool Corporation has successfully expanded its margins and reinforced its industry dominance, demonstrating his ability to drive operational efficiency and long-term growth. While information on him is relatively scarce, his leadership style becomes evident in Pool Corporation’s earnings calls. He approaches discussions with a candid and transparent mindset, acknowledging both challenges and opportunities in the business. In a recent earnings call, he emphasized that year-over-year margin improvements should not be the primary focus, as overly prioritizing them could hinder long-term investments in technology, logistics, and customer service. This perspective reflects a disciplined approach to capital allocation and reinforces the idea that Pool Corporation is positioned for sustainable success rather than short-term financial gains. In a distribution-heavy industry where scale and operational execution are critical, Peter D. Arvan’s leadership has proven to be a valuable asset. His ability to navigate macroeconomic uncertainties while maintaining Pool Corporation’s competitive edge makes me confident in his ability to lead the company in the years ahead.
The Numbers
The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Pool Corporation has consistently achieved a ROIC of over 10% annually for the past decade. Even more encouraging is that the company maintained a ROIC above 20% each year until 2024. The decline in 2024 was primarily due to economic uncertainties and high interest rates, which led to a reduction in new pool construction - a high-margin business for Pool Corporation. Management noted that new in-ground pool construction units declined by 15%, from 72.000 in 2023 to approximately 61.000 in 2024, as post-pandemic demand normalized and macroeconomic conditions remained unfavorable. However, they expect new pool construction to rebound once the economic environment improves. Given this context, I am not concerned about the temporary decline in ROIC and anticipate a return to previous levels of around 30% as conditions stabilize. It is also worth noting that despite operating in a challenging economic environment, Pool Corporation still managed to achieve a ROIC of 18%, further demonstrating the resilience and quality of its business.
The following numbers represent the book value + the dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. Pool Corporation experienced some fluctuations between 2014 and 2016 but has steadily increased equity every year since 2016 - until 2024, when it declined compared to 2023. However, despite macroeconomic challenges, equity still reached its second-highest level ever, which is encouraging. I expect equity growth to resume once the economic environment improves.
Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Not surprisingly, Pool Corporation has consistently generated positive free cash flow each year over the past decade. Free cash flow declined in 2024 compared to 2023 but still reached its second-highest level, which is encouraging given the macroeconomic challenges the company faced. The levered free cash flow margin also decreased in 2024 but remains at its second-highest level ever. Management allocated free cash flow toward acquisitions, business investments, debt repayment, and shareholder returns through buybacks and dividends. Notably, they increased the dividend by 9% by year-end and repurchased 2% of outstanding shares in 2024. Management has stated that increasing dividends remains a priority while share repurchases will continue opportunistically. As Pool Corporation grows its free cash flow, investors should benefit over the long term. The free cash flow yield is at its second-highest level in the past decade, suggesting that shares are trading at a more attractive valuation than usual. However, we will revisit valuation later in the analysis.
Debt
Another important aspect to consider is the level of debt. It is crucial to determine whether a business has manageable debt that can be repaid within a three-year period. This can be assessed by calculating the ratio of long-term debt to earnings. Upon analyzing Pool Corporation’s financials, I found that the company has a debt-to-earnings ratio of 2,09 years. Since this is below the three-year threshold, debt is not a concern for me. It is also worth noting that management has prioritized debt repayment, reinforcing their commitment to maintaining a strong financial position. This focus on debt management is something I personally appreciate.
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Risks
Macroeconomic conditions present a significant risk for Pool Corporation due to the strong correlation between consumer discretionary spending, housing market trends, and demand for new pool construction, remodeling, and outdoor living products. Several key factors influence the company’s performance, including interest rates, inflation, home turnover, consumer confidence, and access to credit. High interest rates have been a major headwind, making financing more expensive for homeowners considering new pool installations or major renovations. While inquiries for new pools remain steady, management has noted that financing-dependent consumers remain hesitant to commit. As a result, new in-ground pool construction units have declined by approximately 50% from their pandemic-driven peak. Since new pool construction is a high-margin business, this decline has weighed on Pool Corporation’s gross margin. Home turnover is another critical factor. In 2024, turnover declined as homeowners held onto their lower-rate mortgages rather than moving. Historically, higher home turnover has fueled demand for new pools, as many homeowners install or renovate pools after purchasing a house. Consumer confidence and discretionary spending trends further impact Pool Corporation’s business. When economic conditions are strong, homeowners are more likely to invest in pools, irrigation systems, and outdoor living spaces. However, in uncertain environments, they tend to defer these purchases, particularly when access to credit tightens.
Weather is a significant risk factor for Pool Corporation due to its direct impact on pool usage, maintenance demand, and installation activity. While the company benefits from warm and dry conditions that extend the swimming season and drive sales of chemicals, maintenance supplies, and equipment, unfavorable weather can negatively affect its business in several ways. One of the primary risks is the seasonality of Pool Corporation’s operations. The company generates the majority of its revenue and profits during the second and third quarters when pool usage, installations, and maintenance activities peak. In 2024, 60% of net sales and 73% of operating income came from these quarters. Any disruption during this period - such as unseasonably cool temperatures, excessive rainfall, or storms - can have a significant impact on financial performance. Weather-related challenges can also affect the early-season ramp-up in the first quarter, as seen in 2023 when poor weather delayed pool openings in several seasonal markets. This led to a 15% decline in sales compared to the previous year and contributed to elevated inventory levels across the industry. When pool openings are delayed or the season is cut short, demand for chemicals, maintenance supplies, and replacement parts declines, creating an abnormal selling environment that pressures profitability. The seasonality of the business also affects working capital management. The company typically builds up inventory during the winter months in anticipation of the peak selling season. However, if unfavorable weather leads to weaker demand, Pool Corporation may end up with excess inventory, straining cash flow and profitability.
Competition is a significant risk for Pool Corporation due to the fragmented nature of the pool supply industry and the presence of multiple competing channels, including national, regional, and local distributors, as well as mass-market retailers and internet-based sellers. While Pool Corporation is the largest wholesale distributor of swimming pool and outdoor living products, it faces competitive pressures that could impact its market share, pricing power, and profitability. One key risk is direct competition from other pool supply distributors. Although Pool Corporation benefits from its scale and distribution network, regional and local distributors continue to challenge its position, particularly in states like Florida, California, Texas, and Arizona, which accounted for 54% of its net sales in 2024. These states have a high concentration of pool owners, making them attractive markets for competitors. If new players enter these regions or existing distributors expand, Pool Corporation could face pricing pressure and customer attrition. Another concern is the low barriers to entry in the industry. New competitors can emerge with relative ease, particularly smaller regional players or local operators who may undercut pricing or provide more personalized service to contractors and pool service providers. Additionally, private equity firms have been increasingly active in the pool industry since 2021, driving consolidation among national accounts. This could give certain competitors greater market power and economies of scale, allowing them to capture a larger share of the market. Beyond industry competitors, Pool Corporation faces indirect competition from mass-market retailers, such as big-box stores and large specialty pool and irrigation retailers. Historically, these retailers have had a limited presence in the pool supply space, dedicating only a small portion of shelf space to pool-related products. However, if they expand their offerings, they could become a greater competitive threat. Many of these retailers bypass distributors and purchase directly from manufacturers, giving them the ability to offer lower prices and put pressure on Pool Corporation’s margins.
Reasons to invest
Long-term trends provide a compelling reason to invest in Pool Corporation, as several structural factors support sustained growth in the pool and outdoor living industry. Favorable demographic shifts, evolving homeowner preferences, technological advancements, and a growing base of aging pools create multiple avenues for expansion. One of the most significant long-term drivers is population migration to the southern United States, where warmer climates allow for year-round outdoor living. States such as Florida, Texas, Arizona, and California have seen steady population growth, increasing demand for new home construction and, in turn, pool installations. Generational shifts in homeownership also contribute to long-term demand. Millennials and Gen Z are increasingly entering the housing market, many purchasing homes in suburban and southern regions where pool ownership is more common. As these younger homeowners seek to enhance their outdoor spaces, the industry stands to benefit from increased investment in pool installations, renovations, and maintenance. Aging pools and the need for upgrades represent another major growth opportunity. The average installed pool is over 22 years old, and maintenance costs for older pools continue to rise. Eventually, outdated equipment becomes uneconomical to operate, maintain, or repair, leading homeowners to renovate their pools with more energy-efficient and technologically advanced features. Pool Corporation estimates that 70% of existing pools lack automation, creating a significant opportunity for equipment upgrades. Features such as smart control systems, energy-saving pumps, and automated maintenance solutions are becoming increasingly popular, improving efficiency and reducing operating costs for pool owners. Over time, the shift toward sustainability and automation should drive demand for higher-value pool products.
Pool Corporation’s private-label products are a strong reason to invest in the company, as they enhance margins, build customer loyalty, and provide a competitive edge over third-party brands. By expanding its proprietary product lines, Pool Corporation differentiates itself from other distributors while increasing pricing power and control over its supply chain. One of the key advantages of private-label products is their contribution to higher gross margins. Management has highlighted that a greater mix of private-label chemical sales drove overall chemical sales growth, outpacing the expansion of the installed pool base. This indicates strong demand for Pool Corporation’s proprietary chemicals, allowing the company greater control over pricing and profitability. Beyond chemicals, Pool Corporation continues to expand its NPT private-label line, which includes branded pool finishes, tiles, and outdoor living products. Despite a 15% decline in new pool construction in 2024, building material sales declined at a slower rate, reflecting the strength of the NPT brand. This suggests that builders and contractors prefer Pool Corporation’s proprietary products over alternatives, reinforcing customer loyalty. As new pool construction and renovations recover, private-label offerings are expected to play an even larger role in revenue growth. Private-label expansion also aligns with the company’s broader supply chain strategy. Pool Corporation is introducing new categories of private-label products, particularly in maintenance-related items, which provide a stable, recurring revenue stream. Since maintenance is an essential, non-discretionary segment of the pool industry, increasing private-label penetration in this category ensures consistent demand regardless of economic conditions.
The POOL360 platform is a key reason to invest in Pool Corporation, as it enhances operational efficiency, strengthens customer relationships, and drives higher-margin private label sales. As a fully integrated digital ecosystem, POOL360 offers a suite of SaaS solutions that help pool professionals and dealers manage their businesses more effectively, embedding Pool Corporation deeper into the industry’s supply chain. One of the most compelling aspects of POOL360 is its ability to drive sales of Pool Corporation’s private-label products. The platform’s POOL360 WaterTest software provides in-store and mobile water analysis, enabling dealers to offer consistent and accurate chemical recommendations. This directly benefits Pool Corporation by increasing demand for its private-label chemicals. In 2024, POOL360’s water chemistry test recommended over 1 million product applications to consumers through its dealer network. Since POOL360 exclusively prescribes Pool Corporation’s products, it ensures that private label sales remain a key revenue driver, regardless of fluctuations in new pool construction or renovations. POOL360 is also gaining adoption rapidly, reinforcing its potential as a long-term growth driver. Orders through the POOL360 B2B application rose to 12,5% of total orders by the end of 2024, up from 11% the previous year. This increasing usage suggests that dealers and service providers find the platform valuable for streamlining operations, improving efficiency, and automating reordering. As more businesses integrate POOL360 into their workflows, Pool Corporation strengthens customer retention by making its platform an essential tool for pool maintenance professionals. Beyond water testing, POOL360 PoolService acts as a comprehensive business management tool for pool professionals, offering features such as customer relationship management, route optimization, and billing. By integrating e-commerce, data-driven insights, and automation, POOL360 helps pool service companies operate more efficiently. In turn, this deepens customer reliance on Pool Corporation’s ecosystem, increasing switching costs and reinforcing long-term loyalty.
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Valuation
Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.
The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 11,30, which is from the year 2024. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 22% in the next five years, but 15% is the highest number I use. Additionally, I have selected a projected future P/E ratio of 30, which is double the growth rate. This decision is based on Pool Corporation's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $339,00. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Pool Corporation at a price of $169,50 (or lower, obviously) if we use the Margin of Safety price.
The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 659, and capital expenditures were 59. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 41 in our calculations. The tax provision was 133. We have 38,056 outstanding shares. Hence, the calculation will be as follows: (659 – 41+ 133 / 38,056 x 10 = $197,34 in Ten Cap price.
The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Pool Corporation's free cash flow per share at $15,76 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is $248,78.
Conclusion
I believe Pool Corporation is an intriguing company with a strong management team that has built a moat through its extensive and integrated distribution network. The company has consistently achieved a high ROIC, and while it has declined over the past two years, it is expected to recover once macroeconomic conditions improve. Despite a challenging 2024, Pool Corporation delivered its second-highest free cash flow ever and used it to invest in the business, pay down debt, and reward investors through buybacks and dividends. Macroeconomic conditions pose a risk for Pool Corporation as high interest rates, inflation, and declining home turnover impact consumer discretionary spending on new pool construction and renovations. Weather is another risk due to the company’s highly seasonal business. Unfavorable conditions such as unseasonably cool temperatures, excessive rainfall, or storms can delay pool openings, shorten the swimming season, and reduce demand for maintenance products, leading to lower sales, excess inventory, and profitability pressures. Competition remains a challenge due to the fragmented nature of the pool supply industry, with national, regional, and local distributors, as well as mass-market and online retailers, competing for market share. With low barriers to entry and increasing industry consolidation, new and existing competitors could pressure Pool Corporation’s growth. Long-term trends support Pool Corporation’s expansion as demographic shifts, increasing homeownership in warmer climates, and evolving consumer preferences drive sustained demand for pools and outdoor living spaces. Additionally, the aging installed pool base presents a strong opportunity for renovations and equipment upgrades. Pool Corporation’s private-label products strengthen its competitive position by enhancing margins, increasing pricing power, and driving customer loyalty. The POOL360 platform further supports growth by improving operational efficiency, deepening customer relationships, and driving higher-margin private label sales. I believe Pool Corporation is a great company, and buying shares around $300, which would provide a discount on intrinsic value on all calculations, would be a good long-term investment.
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