Pool Corp. (POOL +1.47%) is one of the latest stocks that legendary investor Warren Buffett has added to the portfolio of Berkshire Hathaway, his holding company. Yet while shares in this pool construction and maintenance products retailer has the Oracle of Omaha's "seal of approval," this has done little to spur bullishness on Wall Street.
In fact, the share price tumbled by a third since the disclosure of Berkshire's position. While no sell-side analysts issued "sell" ratings on the stock, one analyst, William Blair's Ryan Merkel, last month downgraded the stock from "outperform" to "market perform."
NASDAQ: POOL
Key Data Points
So, why is Wall Street so downbeat? Chalk it up to the short-term macroeconomic picture.
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Analyst downgrade highlights key concerns with Pool Corp.
Pool Corp. benefited greatly from a jump in new pool construction demand during the pandemic. However, since 2022, new pool demand has gone, perhaps a change driven as much by high inflation and interest rates rather than "return to office" mandates.
As a result, Pool Corp.'s revenue and earnings have declined. Worse yet, as discussed in the aforementioned analyst downgrade, it may not be until late 2026, when rates have presumably come down further, that Pool Corp's construction supply business starts to bounce back.
The silver lining
Last quarter, revenue was up 1% year over year, and earnings per share were up 4%. While these figures represent sluggish growth (and fell short of expectations), there may be a silver lining here. Pool maintenance product sales, which make up around 65% of total revenue, keep steadily growing. Management also noted in the latest quarterly earnings press release how pool construction materials sales continue to improve.
Once new pool construction picks up again, this will drive further growth in pool maintenance products. Add in how Pool Corp. continues to expand its geographic presence, even during this industry downturn, and it's easy to see why Buffett and Berkshire, fully aware of the short-term challenges, stay focused instead on the long-term opportunity with Pool Corp. As shares remain under pressure, you may want to follow their lead.
