Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...

Here at The Motley Fool, we haven't written a lot about Malibu Boats (NASDAQ:MBUU) -- and that may have been a mistake.

Although it's hardly a household name, you see, according to the community at Motley Fool CAPS, Malibu Boats is a cut above your average stock. In fact, Malibu's superior to pretty much any stock you can name, say our members, who rate Malibu Boats five stars (out of a possible five) on CAPS.

And as it turns out, we're not the only ones who have noticed.

Malibu Wakesetter speedboat in the water

Wells Fargo sees clear sailing for Malibu. Image source: Malibu Boats.

Upgrading Malibu Boats

This morning, analysts at investment bank Wells Fargo announced they're upgrading Malibu Boats to outperform and assigning this $45 stock a $51 price target. That implies Malibu shares could rise 14% in 12 months.

Taking Malibu for a spin

Why does Wells like it? One key reason is the company's decision to buy the assets of rival boatmaker Pursuit Boats, a deal that Malibu announced just yesterday. As Malibu explained in its statement, it will spend $100 million to acquire a "[p]remium brand positioned in one of the largest and fastest growing segments in the marine industry ... offering of 15 models of offshore, dual console and center console boats."

In so doing, Malibu hopes to profit from Pursuit's $124 million in annual sales -- revenue that Malibu says will be "immediately accretive to earnings per share in FY19, excluding purchase accounting and acquisition costs" after the acquisition closes in Q4 of this year.

These extra earnings will pair nicely with Malibu's own "'solid' core fundamentals," says Wells Fargo in a note covered by TheFly.com today. Indeed, as time goes on, Wells Fargo argues that Malibu should be able to leverage its "operational expertise and capital investment" to "enhance Pursuit Boats' premium brand position" -- potentially growing sales and profits even further.

Valuing the deal

Speaking of sales (and earnings), the price Malibu is paying for the Pursuit Boats assets is more than nice. With a $968 million market capitalization and trailing sales of $433 million, Malibu shares currently sell for 2.2 times annual sales. But Malibu is paying barely 0.8 times sales for Pursuit's $124 million in annual revenue -- a valuation barely one-third what its own stock fetches.

Looked at another way, in one fell swoop Malibu is about to expand its revenue stream by nearly 30% -- yet Malibu's stock has gained less than 13% on the news, including today's pop. This suggests that Wells Fargo's prediction of a 14% profit on Malibu stock is entirely within the realm of possibility, and perhaps even a bit conservative.

Valuing Malibu stock

Are there other reasons to believe that Malibu Boats stock might be a buy? There are.

Currently, the longest-term earnings growth projection available for Malibu is that the stock will grow earnings at about 15% annually over the next five years. This makes Malibu stock look pretty pricey at its current P/E ratio of 35. According to other data from S&P Global Market Intelligence, however, Malibu is on course to literally double the $1.58 per share in profits it earned last year by 2020 -- a growth rate much faster than 15%.

By 2020, analysts project the company will be earning $3.17 per share, and if that's the case, then this stock costs only 14 times its earnings two years out, which seems to me a much more palatable figure for a company growing earnings so quickly.

It's also worth pointing out that Malibu's GAAP earnings may not fully reflect how profitable this business already is today. Free cash flow for the past 12 months, for example, rings in at $42 million -- about 68% higher than reported GAAP net income. Valued on free cash flow, Malibu stock already sells for only 23 times FCF.

And of course, all of the above is based on Malibu's trailing results. Given that Malibu is about to become nearly 30% bigger with its Pursuit Boats acquisition, it's entirely possible that these numbers will change for the better. How much better will depend largely on how effective Malibu is at translating Pursuit Boats' clearly robust sales into profits.

We'll look for more information on that score in Q2 2019, after the acquisition has gone through.