Pool stocks: cool fortunes made from heatwaves and staycations

Swimming pool companies are making a bigger splash. In the US, interest in backyard pools shot up last year as the pandemic shut down public centres. Record high summer temperatures linked to the climate crisis have helped sustain a rush for upgrades and new pools. Also propping up demand: uncertainty surrounding overseas travel and reopenings of vacation hotspots.

With staycations likely for 2021, the home pool sales boom has driven related stocks to new heights. In US regions with rising summer temperatures, pools may meanwhile become standard features of higher-priced homes. Investors looking to take the plunge should be aware the market has already priced in near-term growth.

Pool Corp, the world’s biggest distributor of swimming pool equipment, parts and supplies, has more than doubled in market value to $18.6bn over the past 16 months. It is trading at a steep 38 times forecast earnings according to S&P Global.

The Louisiana-based company generated a record $3.9bn in revenue in 2020. The current year looks likely to bring another revenue jump. Distributors initially sold down existing inventory rather than buying new products. Demand has since rippled down the supply chain. 

London-based Pentair, which makes pool pumps, cleaners and automation systems, gets the majority of its revenue from the US. Its shares have almost tripled from their March 2020 lows. Rival pool equipment manufacturer Hayward Holdings is up 51 per cent since it went public in March. It reported a near one-fifth jump in sales last year and expects these to increase as much as 45 per cent in 2021.

Barring another pandemic-related lockdown, the sharp spike in sales last year and this year are unlikely to repeat. However, climate change should ensure demand remains steady.

After the fun of their first pool party, new owners have to knuckle down to a routine of mandatory maintenance. That will be reflected in sales of pool parts like filters, pumps, and chlorine tablets. Even so, investors should wait for valuations to moderate before diving in.

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