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Why Shares in Swimming Pool Firm Latham Group Are Surging This Week

What happened

Shares in planners and manufacturers of underground residential swimming pools Latham group (NASDAQ: SWIM) were up more than 10% on Thursday at 3 p.m. EDT. The move is largely due to what is known as a “relief rally” by the stock after its competitor. Pool Corp. (NASDAQ: POOL) released a solid set of results for the third quarter.

Pool Corp. is the world’s largest distributor of swimming pool products, including Latham products. Latham is now the leading manufacturer and designer of fiberglass recessed swimming pools in North America and the leading player in the market for replacement liner and safety covers for swimming pools.

A back yard pool.

Image source: Getty Images.

The stock didn’t start trading at $ 19 until April 23, but unfortunately it has been pretty downhill since then. It is now trading at around $ 15 at the time this was written. The reason for the poor performance? It’s likely a combination of value concerns and worries that end markets will give way significantly.

With a market price of $ 19, Latham is trading at 30 times its estimated 2022 profit, and even after the decline, it’s still 24 times that looks expensive. As for end markets, it’s no secret that swimming pool spending has increased during the pandemic as consumers choose to spend more time at home. So the fear is that Latham hit the market just as the industry was on the verge of slowing down from the rapid growth caused by the pandemic.

In addition, investors were baffled by the resignation of Chief Operating Officer Jeffrey Leake on September 8, to “pursue other opportunities” just 15 months after his appointment.

so what

Fortunately, end market fears were offset by Pool Corp.’s excellent third quarter results. muted – Net sales rose a whopping 24% quarter over quarter, and management promptly increased its EPS guidance for the full year to $ 14.85 to $ 15.35 from a previous range of $ 13.75 to $ 14.25.

A swimming pool.

Image source: Getty Images.

Peter Arvan, CEO of Pool Corp., said, “The strong demand trends combined with our focused strategic initiatives and the ability to execute them put us in a good position for the remainder of 2021 and into the next season.”

All is reading well for the Latham Group and consumer discretionary stocks rose on the news from Pool Corp. The company is releasing its third quarter earnings data on November 10th and there is a feeling the company may beat expectations. In addition, it appears that the surge in pool-related spending extends beyond the pandemic.

What now

Wait and see what the Latham Group reports and says about 2022. Current trade is likely to be strong, and the company has a long-term growth opportunity by increasing the penetration rate of fiberglass pools compared to concrete pools.

This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.