Sometimes, the news wire is just a good excuse to get to know a company better. Such is the case today with MarineMax (NYSE:HZO), which upped its 2006 guidance today following the completion of its $27.5 million purchase of Port Arrowhead Marina Group. For 2006, the company looks to earn $1.89 to $2.01 per share.
There endeth the news. Let's get to the fun stuff.
For those just tuning in, MarineMax is still quite wee as enterprises go, capitalized at just $560 million. That size belies the firm's market position -- according to the company, at least, it's the nation's largest dealer of recreational boats, a company that sells a lot of products from Brunswick (NYSE:BC), a successful acquirer that was one of MarineMax's investors.
I confess up front a bit of intrigue for the potential. The boat and marine business in this country remains highly fragmented, a situation familiar to those who follow Motley Fool Hidden Gems picks Marine Products (AMEX:MPX) and Otter Tail (NASDAQ:OTTR), a power company that also dabbles -- rather more than dabbles, actually -- in dock systems.
Though the name's similarity to CarMax (NYSE:KMX) might suggest otherwise, MarineMax's model is to sell high-end products. The average selling price for a fiberglass boat is well over $110,000. The company aims to accomplish its sales in a no-haggle environment and to take advantage of the market's current fragmented state to pick up retailers and other properties in an attempt to grow into an even bigger market leader. As its presence grows, it aims to continue moving into higher-margin operations such as financing, storage, used-boat brokerage activities, and service.
The company's $947 million in revenues for fiscal 2005 gave it less than 4% of the estimated $26 billion market opportunity. (If you take a wider view of MarineMax's industry opportunity, incorporating the kind of ancillary services that are encompassed in marina operations like those at the recent acquisition, you're looking at a $33 billion opportunity.)
How well will this strategy work? I'm still on the fence. While I see the logic behind the drive to build a nationwide network and benefit from the operational synergies that could be developed, I'm concerned about some of MarineMax's returns in this regard. Some of its acquisitions came with pretty hefty goodwill. Moreover, the company's cash conversion cycle has gone from 111 days in 2000 to 142 days for fiscal 2005. And last year was also the company's first in five years that saw negative cash from operations, caused mostly by a pair of $30 million swings in inventories and accounts payable. I also have to admit that the returns on assets, capital, and equity aren't particularly awe-inspiring, though they have marched up steadily since fiscal 2001.
In MarineMax, we may have the beginnings of something big, or a great-sounding idea that won't quite float. Fools interested in either situation should keep a careful eye on the integration of acquisitions, to see whether MarineMax is going to sink or swim.
For related Foolishness:
Marine Products and Otter Tail are Motley Fool Hidden Gems recommendations. For more of the market's most promising small-cap investing ideas, click here for a free, no-risk trial to Tom Gardner's newsletter service.
Seth Jayson has boat envy, and he hopes that in the future, the biggest decision he'll need to make on any day is "Leeches? Or worms?" At the time of publication, he had no positions in any company mentioned. View his stock holdings and Fool profile here . Fool rules are here .
