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Why Pool Corporation Stock Rose 27.1% in May

By Billy Duberstein – Updated Jun 6, 2020 at 3:15PM

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Stuck at home for Memorial Day, many are investing in their pools this summer.

What happened

Shares of Pool Corporation (POOL -0.77%) rose 27.1% in May, according to according to data from S&P Global Market Intelligence.

The pool supplies company had been on a nice run since its late April earnings report, which beat analyst expectations. The stock then continued to rise in May on optimism over a reopening economy, then capped off the month on a strong note when management gave a positive business update.

A young woman lies face up on a pink floatie in a pool.

Image source: Getty Images.

So what

In late April, Pool delivered better-than-expected Q1 results. Revenue grew 13% during the quarter, and earnings per share of $0.75 beat expectations by $0.10. The stock then continued to rise into early May on optimism of an economic recovery throughout the month.

Then, on May 27, Pool gave a positive business update on current sales trends. While the company had initially said it was seeing 5%-10% sales declines during the first three weeks of April, business started to improve late in the month, and are "trending favorably and are continuing to benefit from strong demand." 

Not only that, but Pool also said sales of larger, big-ticket items are making up a larger part of the mix, showing that people are looking to invest heavily in their homes and especially their home pools this summer. After all, the coronavirus is still out there, and cases have started to rise in certain states that have lifted their lockdowns.

Now what

No doubt, Pool Corporation is no longer an undervalued stock, having recently touched all-time highs in June, and now up an astonishing 24.4% this year.

At a P/E ratio of 41 and with revenue growing only in the low to mid-teens on a normal run rate, this consumer discretionary stock looks a bit pricey here and could be due to for a pullback after its strong May run, despite the positive business results.

Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool recommends Pool. The Motley Fool has a disclosure policy.

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