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Malibu Boats Stock Gets Torpedoed After Q4 Report Despite Strong Performance

By Rhian Hunt – Sep 2, 2021 at 10:51AM

Key Points

  • Malibu Boat's adjusted fiscal 2021 earnings per share were $6.01, up 82.7%.
  • Strong performance has led to historically low inventories and worries about supply chains.
  • Most analysts covering this stock have maintained their buy and overweight ratings.

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The company beat expectations, but traders are judging it harshly over guidance concerns.

Though performance sport boat builder Malibu Boats (MBUU 0.64%) raced ahead in both revenue and earnings during its fiscal 2021 fourth quarter, its stock ended last week trading down sharply, then began this week with a fresh plunge.

Concerns about supply-chain problems appeared to outweigh the impact of soaring demand and other upbeat news in the minds of Wall Street traders. However, three points hint at a potentially different, and much more bullish, thesis.

A Malibu M220 boat motors in a waterway with passengers aboard and a water skier being towed behind it

The Malibu M220 in action. Image source: Malibu Boats.

1. Malibu Boats performed well in Q4 and all year

The company delivered record quarterly and full-year results, with revenue up 133.2% year over year in fiscal Q4, net income 437.1% higher, unit volume surging 110.7%, and adjusted earnings per share up 360% to $1.84. Malibu Boats beat analysts' consensus expectations on both the top and bottom lines, with revenue delivering a nearly 8% positive surprise and adjusted EPS outperforming expectations by 12.2%.

Malibu not only more than doubled its number of boats sold, but it also sold more high-end watercraft. Net sales per unit rose 10.7% overall for Q4, and 11.7% for the fiscal year. The earnings release notes these gains were "primarily driven by higher sales of new, more expensive models and optional features," meaning customers were not only buying more boats but were purchasing more costly ones with higher margins.

The two peers the company acquired in the past few years, Cobalt Boats and Maverick Boat Group, are also contributing to its profits. Cobalt, a maker of medium-to-large outboard and sterndrive boats that Malibu bought in 2017 (adding 24 models to its product lineup), saw its net sales rise by 14.5%. Maverick, a bay and center-console boat manufacturer purchased in January, "continues to earn its stripes," said Malibu CEO Jack Springer during the Q4 earnings conference call. The acquisition's "integration has been smoother than butter," he added, with the new brand helping drive Malibu's 96.5% rise in overall saltwater fishing segment sales, despite its cheaper models contributing to a 30.1% drop in segment net sales per unit.

2. Supply-chain disruptions persist, but demand is high

In light of these strong metrics, investors' negativity appears somewhat puzzling. Concerns are centered on the supply chain and the possible inability of boat manufacturers to meet soaring demand. CEO Jack Springer acknowledged "supply-chain challenges continue to evolve daily from raw material inputs, such as resin, foam, and metals to persistent labor shortages at our suppliers to transPacific and domestic logistics delays and backups" during the Q4 earnings call. He said inventory is at "historically low levels" and added Malibu has "an unprecedented 24- to 36-month ramp taking us to fiscal 2024 before we see more normalized inventory levels."

Arguably, these are good problems to have, with demand expected to remain high for two more fiscal years (at least through calendar summer 2023). The company is guiding for revenue growth in fiscal 2022 in the high-teen percentages, along with 20% EBITDA margins. Springer also noted that added costs passed on to the customer are already "baked in," and are "not having any impact in demand. We continue to see that demand and the acceptance of the new pricing."

Major analytical firms agree. Most have retained their buy or overweight ratings on Malibu, with only one rating it neutral, according to MarketBeat. Several raised their price targets on the stock, with one, B. Riley Financial, seeing upside of more than 41% based on its $103 price target. Even the few that lowered their price targets still see the stock rising well beyond its current levels of the next 12 months, again suggesting the market is overreacting to the concerns about supply chains and inventory.

A Malibu M220 ski boat races across the water of a lake with trees being seen on the shoreline. The boat has several passengers in it

Image source: Malibu Boats.

3. Outside data supports Malibu's outlook

The boating industry -- like many others that cater to outdoor recreational and lifestyle activities -- got a huge boost from the pandemic. With so many entertainment venues shuttered for months, and then later subject to capacity and masking restrictions, many people sought opportunities for open-air relaxation. Those that have benefited range from golf equipment companies like Acushnet Holdings (which is growing rapidly despite a golf ball shortage) to shooting sports suppliers such as AMMO, to recreational vehicle suppliers and motorcycle and power sports manufacturers, among others. These trends remain strong this year.

The surge in U.S. boat sales began in early 2020. Industry watchers saw a 19% year-over-year rise in new boat sales during May 2020, a 41% surge in personal watercraft sales for June, and a 51% month-over-month rise in yacht sales for May. According to National Marine Manufacturers Association (NMMA) figures, 2020's boating sector sales soared to $47 billion, beating 2019 by 9% and setting a 13-year high.

Based on new powerboat registrations, the NMMA reported on Aug. 2 that boat demand remains very strong, with a 48% to 55% rolling 12-month rise in purchases of wake sport boats, cruisers, and other types through May 2021, the latest period for which data is available. The NMMA noted that the biggest challenge for the industry is meeting the sustained demand with reduced manufacturer shipments, but it believes that with proper handling, interest can be sustained at least into 2022 and 2023.

Is Malibu worth a look?

Traders seemingly bid Malibu's stock down mostly based on its supply-chain problems. However, these difficulties aren't unique to the company, and its performance has been strong despite them. Demand also remains high, and while companies like Malibu can't entirely meet it yet, a rising tide lifts all boats, and the ongoing trend of watercraft purchases will likely continue to support increased revenue and earnings.

Malibu has popular products and an efficient business model to make the most of this favorable market. Investors on the hunt for consumer durables stocks may want to view temporary dips in its share value as buying opportunities, while keeping their eyes on the likelihood of the boat maker rewarding shareholders with medium- and long-term growth.

Rhian Hunt 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.

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