Best Idea Short Pool Corp (POOL) missed the quarter, putting up $1.79 vs the Street at $1.98. Largely a top line miss, which we were banking on. Base business net sales up only 1%, including 8% benefit from passing through inflationary cost pressure (on top of 10% inflation this time last year – so we’re looking at a 2-year 18% inflationary growth stack). EBIT declined 16% despite the revenue growth, as margins took a meaningful hit. Surprisingly, the company put out $16-$17 per share in guidance for 2023, with the Street at $16.29. We’re just below $13 for the year. Management noted that it expects increasing demand from non-discretionary maintenance products due to the higher installed base of pools, which we find surprising given that the installed base is up only 5%. It’s also banking on increased renovation activity. All in, with this miss, the company should have guided down – even if it thinks it could hit higher numbers. Now it faces multiple compression on ‘hope’ that it could hit 2023 numbers. What’s interesting is the dichotomy between POOL’s optimistic outlook, and Pentair’s guidance on 1/31 that its’ Pool business would be down Low Double-digits, with new/remodeled down 20%. It hardly synchs with what we’re hearing from POOL management. If we’re right on our $13 EPS number, this name is likely to get a mid teens multiple on that number, which suggests a stock closer to $200 vs $372 today. Even if we're directionally right in our model, we don't see how you get hurt shorting at this price and nosebleed 23x multiple. We’d press this one here.
Takeaway: We’d press POOL at $372. Missed the quarter, but gave rosy outlook. Setting up for a series of misses and revaluation. 40% downside.
