Could Pool Corporation (POOL 2.10%) make you a millionaire? Well, the partial answer is that it likely did make a few millionaires if they had invested as little as $10,000 in the company back at the turn of the century. But then the stock lost around 45% of its value.
So could another leg up be in the cards? It looks like at least one prominent investor -- Berkshire Hathaway, an owner of the stock -- thinks so. Let's consider perhaps why.
Pool Corp. has a growth bias
Pool sells the supplies needed to build, upgrade, and maintain pools. It's a pretty mundane business, but there's an interesting aspect to owning a pool that has to be considered; once you build a new pool, it has to be property maintained, or it can quickly become a nasty swamp in your backyard instead of a place to have some family fun. This gives Pool's business a growth bias.
Image source: The Motley Fool.
Roughly two-thirds of Pool's sales are derived from maintenance and repair products. Every new pool that gets built increases the customer base for this side of the business. And that new customer doesn't go away until the pool in question is torn out. The other third or so of the business is related to the building of new pools and the renovation of older pools.
The construction of pools tends to be highest when economic conditions are good. So recessions can be particularly bad for Pool's overall business over the short term. Higher interest rates have also been an issue recently, because it makes it harder to afford a pool. This helps explain the drop in Pool's share price.
The peak, during which that $10,000 investment at the start of 2000 would have been worth over $1 million, came because of the coronavirus pandemic. Not only were interest rates lower then, but people were forced to stay at home and had nothing to do. A lot of people built pools, supercharging Pool's financial results.
Warren Buffett and Berkshire Hathaway buy Pool
At the peak, Pool was probably a bit expensive. When the stock tanked, however, it peaked the interest of Warren Buffett and Berkshire Hathaway. Buffett likes to buy well-run companies when they appear attractively priced. But the real key is that he then likes to hold them for the long term to benefit from the growth of the businesses over time.
This makes Pool something of an interesting story for investors. Wall Street probably got overexcited about the stock during the pandemic. But now that the shares have fallen so much, it seems like the inherent growth bias of the business is being overlooked. That's not to suggest that Pool isn't facing headwinds, but that those headwinds aren't likely to derail the company over the long term, given the maintenance component that underpins the business.
But could investing $10,000 today in Pool make you a millionaire? There's no way to know the answer to that, of course, but given the nature of the business, it seems like a very real possibility.
That said, you'll need to buy and hold for the long term, like Buffett. This isn't a business that is likely to see overnight success -- slow and steady progress is the likely norm. But slow and steady can build massive wealth over the long term.
Follow Buffett's lead with Pool?
You should never buy a stock just because some other investor has bought it. You need to make sure it jives with your own investment approach. For example, Pool doesn't pay much of a dividend, with a modest 1.7% dividend yield. But if you have a growth bias and a long-term time frame, the inherent growth built into the pool supply side of the business could make this stock worth a deep dive today. And that's true whether you have $10,000 or just $1,000 to invest.
