When Berkshire Hathaway (BRK.A 1.49%) (BRK.B 1.25%) steps in to buy a stock, it makes headlines. That is how most investors probably first learned about Pool Corp. (POOL 2.31%). But Warren Buffett and his investment team don't just buy any old company. They like to buy well-run businesses when they are attractively priced. And you can easily argue that this description fits with Pool Corp. Here's why you might want to follow Buffett's lead and buy Pool Corp. right now.
What happened to Pool Corp.'s stock?
Before getting into the business model, it is worth a quick look at Pool Corp.'s stock price. As the graph below highlights, it rose dramatically in 2020 and into 2021. And then, in late 2021, the stock fell off a cliff and has been range-bound since. It is currently about 50% below the all-time highs reached in late 2021.
Data by YCharts.
The last time Pool Corp.'s stock experienced a drawdown of this magnitude was during the Great Recession. This fact suggests that there may be something worth looking at here. Buffett's interest in the stock, meanwhile, hints that the market is thinking short term when it ought to be thinking long term. After all, Buffett and his team tend to buy well-run businesses when they are attractively priced with the hope of holding them for years into the future.
Adding to the appeal here is Pool Corp.'s historically high dividend yield of 1.7%. And the fact that its price-to-earnings, price-to-sales, and price-to-book value ratios are all below their five-year averages. To be fair, the P/E ratio is only slightly below its longer-term average, and at 27x, it is hard to suggest the stock is cheap. But Buffett doesn't shy away from buying growth-oriented businesses if he thinks they present a compelling long-term value at the time he's buying them.
Image source: Getty Images.
So, is Pool Corp. stock a buy after a 50% price decline?
If your investment approach is focused on generating income, you probably won't find Pool Corp.'s 1.7% dividend yield very attractive. And if you have a value bias, the 27x P/E ratio will probably be a hard sell. So the most appropriate place for this stock is likely to be in the portfolios of growth and growth and income investors. And that brings the business model into the spotlight.
Pool Corp. is a retailer that sells pool supplies. It covers two broad industry segments, construction and redevelopment supplies, and maintenance supplies (which are roughly two-thirds of its revenues). There are very different dynamics to each side of the business. Construction and redevelopment activity tends to be cyclical and highly sensitive to economic cycles. The activity here can cause volatility in Pool Corp.'s revenue and earnings over the short term.
But every new pool that gets built effectively increases the number of pools that have to be maintained. So the core demand for supplies is inherently growth-oriented over the long term. And, as noted, this is the largest part of Pool Corp.'s business. Not maintaining a pool is an inherently bad decision that quickly becomes problematic because of the very obvious results of such negligence.
To be fair, it is likely that investors got too excited about Pool Corp. during the coronavirus pandemic. But the huge price drop is likely an overreaction, as well, given the inherently growth-oriented nature of the pool industry. Economic worries and higher interest rates are a notable headwind to pool construction, of course. But the core of the business is pool supplies, which provided a reliable foundation in the first quarter of 2025.
The company's weak financial results were largely driven by a drop in the sales of building materials and equipment. That said, Pool Corp. increased its number of locations year over year, which speaks to another growth avenue for the business, given that it is a retailer. The growth in the store base and the fundamental strength of supplying maintenance products is largely being hidden by the drop in the construction of new pools. Which could be why Buffett and his team have been interested in Pool Corp.'s stock.
Make sure you have the fortitude to stick around
All in, there's a strong case for buying Pool Corp. right now. But don't do it if you can't stick out some near-term difficulties. This is a long-term investment, falling into Buffett's classic approach of buying well-run businesses when they are out of favor. Although it seems likely that Pool Corp. will keep growing over time, it could require years of patience before Wall Street's opinion of the stock improves again. In fact, it might require another pool building boom, which doesn't seem likely to be on the near-term horizon right now. In other words, Pool Corp. seems attractive for investors who, like Buffett, think in decades, not days.
