The group's business is suffering from the combined effects of a post-pandemic slowdown — in the United States, new swimming pool construction has halved since the peak in 2022 — and a depressed economy in the discretionary consumer sector.
A third stress factor is the rise of competition led by Home Depot, which intends to take advantage of its privileged position to challenge pure players for market share in a historically highly lucrative business segment.
Berkshire Hathaway sees things differently, as this slump has been exploited by one of Warren Buffett's lieutenants — Todd Combs or Ted Weschler, both in charge of the Omaha-based conglomerate's portfolio of listed holdings — to double its stake in Pool.
It is true that the Los Angeles-based group claims to have largely recurring revenue—four-fifths according to its management—notably thanks to the place of maintenance products in its catalog.
In addition, Pool benefits from real pricing power in a context of ongoing inflation in the costs of installing and renovating existing units, while pursuing new opportunities in irrigation technologies and international markets, including France, its largest market outside the US.
Its historically low-capital business model enables it to generate comfortable free cash flows and return a large portion of these — two-thirds — to shareholders through share buybacks. A small portion — one-quarter — is devoted to M&A, with very good return on capital invested, both organically and in this area.
Over the past decade, revenue has doubled and free cash flow has increased fivefold, while the number of shares outstanding has decreased by one-sixth. Over the cycle, Pool has maintained an excellent balance sheet and very comfortable solvency ratios.
With $600m in free cash flow in 2024 and a market capitalization of $12bn, the group is trading at 20x its cash profit for a sluggish year—the first decline since 2008—a level that could attract the interest of enterprising investors.
However, the difficult economic environment remains. In the first three months of fiscal 2025, revenue fell by a further 5% and operating income by 29%.
