Pool Corp: Why is this Warren Buffett-backed stock down 53%?

Pool Corp’s stock price has been in a strong freefall this year, and is now at its lowest level since 2020. It has plunged by ~53% from its highest point this year, erasing $16 billion in value as the market capitalization dropped from $24.5 billion to the current $8 billion. 

Pool Corp stock has crashed as it faces major headwinds

Pool Corp is a top American company that specializes on swimming pool supplies. It sells its products in North America, Europe, and Australia, where the number of pools in households and institutions has jumped.

The company counts Warren Buffett as one of its top investors. Berkshire Hathaway, his company, holds over 3.45 million shares in the company worth over $793 million. He believes that the company is an overvalued blue-chip name with potential for growth.

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Pool Corp’s business has faced numerous challenges in the past few years. Its annual revenue dropped to $5.31 million last year, from $5.54 billion in the previous year. Its annual revenue has been in a downtrend since 2022 when it made over $6.17 billion.

Pool Corp’s profitability has also been in a downward trend as revenues fell and costs rose. Its net income dropped from $748 million in 2022 to $412 million in the trailing twelve months (TTM).

The most recent results showed that Pool Corp’s net sales rose slightly to $1.45 billion in the third quarter. Its gross profit rose to $429 million, while its operating income rose to $178 million. 

The company’s weakness will likely persist in the near term as inflation remains at an elevated level. For example, the average estimate among 14 analysts is that the fourth quarter revenue will come in at $999.1 million, up slightly from what it made last year.

The company’s annual revenue will come in at $5.31 billion, down from the same period last year. Also, the average estimate is that its earnings per share will be $10.85, down from $11.07. 

Pool Corp stock has also retreated because of its inventory, which has remained at a high level over time. It ended the last quarter with $1.22 billion, up from $1.18 billion it had in the same level last year.

Analysts have a mixed opinion on the Pool stock. CFRA recently upgraded the stock to a buy, while William Blair slashed to market perform from outperform. The average target is $322, up from the current $229.

Pool stock price chart analysis 

The weekly chart shows that the Pool share price has pulled back in the past few months. It has dropped from a high of $409, its highest point in March 2024 to the current $229. 

A closer look shows that the stock has moved below the key support at $268, the lower side of the inverse cup-and-handle pattern. It was also the lower side of the head-and-shoulders pattern. 

Pool stock has remained below the 50-week moving average, a sign that bears remain in control. The RSI and the MACD indicators have continued falling. Therefore, the stock will likely keep falling as sellers target the key support at $200.

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