Investors watch the portfolio of Berkshire Hathaway very closely, given the long-term success of CEO Warren Buffett as an investor. This is why the acquisition of Pool Corp (POOL 1.08%) might interest you.
However, the stock is deeply depressed, down more than 50% from its 2021 high-water mark. It's in its own deep bear market.
Here's why that could make now a good time to jump aboard.
Image source: The Motley Fool.
What does Pool Corp do?
Pool Corp is a specialty retailer focused on selling pool supplies. The products it sells span the entire life cycle of a pool, from building new pools (around 14% of 2024 sales) to maintaining existing pools (64%) to renovating and remodeling older pools (22%). The company is mostly focused on the U.S. market, which accounted for 93% of sales in 2024, with Canada and Europe chipping in the rest. Pool specialists make up most of the customer base (about 80% of sales).
There's nothing particularly surprising about Pool's business. But the stock still went from market darling to living in the Wall Street doghouse. The reason is that emotions got the better of investors during the coronavirus pandemic.
During that uncertain period, low interest rates and people stuck at home combined to fuel a pool-building boom. Wall Street extrapolated that demand into the future as if pool demand would never return to normal. But demand did fall after the world learned to live with COVID-19, and interest rates rose. Investors, not surprisingly, abandoned Pool's stock.
And then, in late 2024, Berkshire Hathaway stepped in to buy it. Warren Buffett, the CEO of Berkshire Hathaway, has a pretty simple investment approach. Buffett likes to buy well-run businesses when they are attractively priced and then hold for the long term to benefit from the growth of the business over time.
The fact that Pool is in its own bear market is evidence that it is cheap. Fifteen annual dividend increases is an indication that the company is well run.
Pool is growth-oriented by nature
The next piece of the story, the growth of the business, is the one that really matters for new investors. And a positive prognosis is likely why Buffett and his team bought Pool.
A pool is a luxury item, which means that demand for new pools will wax and wane along with economic activity. So, a portion of the business is cyclical, which will make the top and bottom lines a little volatile over short periods. But new construction was just 14% of the business in 2024.
The bigger issue for investors to consider is what happens to a pool after it is built. The answer is pretty simple: It has to be properly maintained, or it becomes a disgusting mess. Over time, pools may need to be fixed and modernized, which accounted for 22% of 2024 sales.
But the one cost that can't be avoided is proper maintenance, which accounted for 64% of 2024 sales and was the largest component of Pool's business. Every new pool built increases the potential customer base for consumables like chemicals, because not maintaining a pool is a bad choice.
NASDAQ: POOL
Key Data Points
That's the long-term story here and why Buffett likely bought the stock. Sure, the company's business is still struggling now that the building boom went bust. That unique period likely dragged new pool construction forward. That headwind could linger for a bit, particularly if there's a recession. However, every new pool that gets built still needs to be maintained. And eventually, new construction will pick up again.
In the meantime, you can buy Pool stock while its price-to-sales, price-to-earnings, and price-to-book value ratios are all below their five-year averages. The key is to buy and hold, which is the final piece of Buffett's approach.
Can Pool help you reach millionaire status?
Pool Corp is not going to turn you into a millionaire in a year or two. Moreover, it is probably best to include it in a diversified portfolio. You shouldn't expect this one stock, or any one stock, to be your ticket to a seven-figure portfolio. However, given the growth bias to the business, if you are a patient investor who thinks in decades, Pool could help you build a million-dollar nest egg if you have the fortitude to buy when everyone else seems to be selling.
