The coronavirus pandemic may have waned, but its effects continue to linger on at such companies as Pool Corporation (POOL 0.32%), which enjoyed a huge lift early on and is now experiencing the inevitable letdown as people spend less time at home.
But there's an underlying theme for this pool supply retailer that investors shouldn't ignore -- and it's already having a huge impact on the business. Let's explore.
Making "home" more palatable
Most people generally like their homes. But during the early days of the pandemic many people were, effectively, confined to their abodes 24 hours a day, seven days a week. A house starts to get very cramped when you and your family can't leave -- at all. To deal with the cabin fever social distancing created, people started to spend money to make being home more enjoyable.
That spending affected a number of industries, notably furniture companies. But one niche area that also saw a huge benefit was pool construction. Aiding that along, given that building a pool is a fairly expensive thing to do, was the low interest rate environment at the time. If you couldn't go to the public pool or beach, you could cost-effectively bring the pleasure of those experiences home to you with your own pool.
According to Pool Corporation, there are over 311,000 more pools in the U.S. today than there were in 2019, before the pandemic. That's a sizable jump and one that has notable implications. Simply put, if you have a pool, you need to maintain it or it turns into an unsightly swamp.
More pools, more pool spending
Pool Corporation doesn't exactly sell pools, but it does sell everything that's needed to build and maintain them. There's been an important bifurcation on the building side of things. While more expensive pools are still being built, demand for pools at the lower end of the spectrum has dried up. That makes sense, given the swift rise in interest rates. According to Pool Corporation, before the rate hikes, financing a pool might have cost around $700 a month. Now it is $1,200 to $1,400. That's a much harder nut to crack.
The mood around Pool's stock has been decidedly negative lately, with the stock now down by roughly 33% from its 2021 highs. And yet there's all of these extra pools that have been built that need to be maintained. Pool maintenance is a huge part of Pool Corporation's business.
POOL Revenue (Annual) data by YCharts
That has translated into a material increase in full-year revenue and earnings over the past few years. As the chart above shows, the company's annual revenue has basically doubled over the past five years. Earnings per share have risen by 230%.
That said, the trailing-12-month figures do indicate that the peak has most likely passed for the company. But the top and bottom lines still remain much higher than they were before the pandemic. The company appears to be in a much better position today than it was in 2019.
Nobody wants a swamp
To repeat an important fact from above, pools have to be maintained or they become unsightly (the water turns green) and even dangerous. While the pandemic might have pulled forward demand for pool construction, the 311,000 new pools exist and their owners are now reliable customers for companies like Pool Corporation.
Investors who think long term might want to dig in here because the pandemic looks like it has resulted in a step change in the company's business that's unlikely to disappear, even as the world moves opens up again.
