3 Reasons to Buy Pool Corp. Stock Like There's No Tomorrow

Shares of Pool Corp. (NASDAQ: POOL) have been treading water, down about 12% year to date and near their lowest level since 2022.

The pool supplies giant is attempting to swim against the current of a challenging economic environment, as shifting consumer spending trends pressure sales and earnings. Nevertheless, the recent sell-off in the stock could represent a great opportunity for investors to jump in and pick up the sunken pieces of this high-quality industry leader at a discount.

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Here are three reasons Pool Corp. stock is a fantastic addition to your portfolio today.

Image source: Getty Images.

1. The leader in pool supplies

Nothing beats the summer heat like diving into a cool, refreshing pool -- a backyard oasis for countless families and communities.

Pool Corp. stands out as the world's largest pool supplies distributor, operating an extensive network of 448 sales centers across North America, Europe, and Australia. The company serves more than 125,000 customers, including professional builders and maintenance companies, as the go-to source for specialized equipment and materials. Pool Corp. also owns the Pinch A Penny retail franchise with approximately 300 locations.

While demand for pool supplies has historically been tied to the construction and renovation of residential and commercial facilities, Pool Corp.'s true strength lies in its recurring business model. Recognizing that installed pools require consistent upkeep, including treatment chemicals and irrigation systems, 86% of the company's revenue flows from steady, predictable sales of these types of products.

This entrenched leadership, built through deeply rooted customer relationships, positions Pool Corp. for long-term growth in a still-fragmented industry.

2. Rock-solid fundamentals

Pool Corp.'s business model has proven highly successful, allowing it to acquire smaller competitors and consolidate market share. In the past five years, including a pandemic-era pool building boom, total revenue has increased at a 14% compound annual growth rate (CAGR) to $5.3 billion in 2024.

Despite a sluggish housing market and slowdown in new pool construction, management is optimistic about growth driven by its expanding private-label business, which offers high-margin, proprietary products, and Pool360, a cutting-edge digital platform that enhances customer access to inventory and streamlines operations.

The company's outlook underscores its strong fundamentals and operating resiliency. For 2025, Pool Corp. targets net sales to be "flat to slightly higher" year over year, with a full-year earnings-per-share (EPS) estimate of $11.08 to $11.58, representing a 3% increase at the midpoint compared to 2024.

Pool Corp. continues to translate its strong free-cash-flow generation into a generous shareholder-friendly capital allocation strategy. Supported by a solid balance sheet, the company recently hiked its quarterly dividend payment by 4% to $1.25 per share, yielding about 1.3%. Pool Corp. has also upsized its share repurchasing authorization to $600 million, reinforcing its commitment to investors ahead of potentially stronger growth in the long run as operating conditions normalize.

3. A buy-the-dip opportunity

Given Pool Corp.'s underlying strengths and industry positioning, the stock commands a valuation premium relative to the broader market. Nevertheless, its current forward price-to-earnings (P/E) ratio of 27 is at a compelling discount to the stock's historical average P/E of closer to 30 going back 10 years.

By this measure, Pool Corp. appears undervalued, with the assumption that its softer growth trends are temporary.

POOL PE Ratio (Forward) data by YCharts

A scenario where the housing market and pool construction improve or at least stabilize going forward, possibly propelled by subdued inflation and lower interest rates, could be the key for company results to outperform expectations. With the stock down 25% from its 52-week high, I believe now is a great time to start building a position in Pool Corp. shares within a diversified portfolio ahead of a rebound.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.