The results season is running at full speed.
A lot of Quality Stocks published their results already.
We analyzed everything and summarized our key findings here.
Pool Corporation is a wholesale distributor of swimming pool supplies and equipment.
The interesting thing about Pool Corporation is that their sales are very predictable. Why? Around 85% of their revenue is derived from Maintenance and Repairs, which are recurring in nature.
The company grew very attractively from 2020-2022. It’s one of the companies that ‘took advantage’ of COVID. People couldn’t go on vacation and they started installing swimming pools in their garden instead.
Today, everything is back to normal (more or less), giving the company some tough comps.
Here are some takeaways from the Q3 Results and Earnings Call:
“We have taken market share virtually every year that we have been in existence. We will continue to do that going forward.”
“So the good news about a swimming pool in the market is there are certain things that I have to do every week, as you know, as a pool owner. There are some things that I could defer, but you can only defer things for so long. So that part of the market, we remain confident in.”
“We tend to be very long-term focused on our investments and deliver it with where we are investing capital on recognizing that sometimes you spend money this year to reap rewards next year or the year after or the year after.”
Remember that Compounding Quality doesn’t care a lot about quarterly results as we like to think in quarter decades instead of quarters.
In the long term, Pool Corporation aims to grow its revenue with 6-9% per year and its EPS with around 15%.
The company currently trades at a PE of 22.2x based on the expected Earnings Per Share for 2024.
Pool Corporation is a great business but we’d like to own the company at cheaper valuation levels.
Watsco is a serial acquirer in Heating, Ventilation, and Air-conditioning (HVAC) in the United States.
The company uses a decentralized business model just like Berkshire Hathaway and Constellation Software.
Albert Nahmad has been the CEO for over 50 (!) years. Insiders own almost 23% of the company and more than 50% of the voting rights.
Takeaways from Q3 Results and the Earnings Call:
“But what I want to get across is a reminder that we are a long-term company. And quarter-to-quarter, there is going to be noise and actions in all those categories, but we are focused on the signal. And as we have said, the long-term aspirational goal of gross margins is 30% and we see that within reach in time.”
“We have an immense technology advantage, and we are investing to grow that advantage. Our mobile platforms and e-commerce channels have increased customer engagement, reduced attrition, created market share gains, and supported our margin expansion in recent years.”
“Yes. I think affordability has always been a question, and yet the industry has grown 3.5% compounded for 30 years, and things are always more expensive over time given all the regulatory things.”
“… I went back and looked at our cost to him, meaning our revenues, what did Watsco sell that guy in my $6,200 installation? And the answer was around $2,900. So the layer – my point is there is a layer in this called the contractor that’s also a very important layer of both profit and cost and consumer price and so on.”
Just like Pool Corporation, Watsco is a company Compounding Quality would love to own at the right price.
The company currently trades at a forward PE of 23.1x based on the expected EPS for 2024.
We would start to get interested when Watsco drops 10-20% from today’s levels.
Now let’s dive into the following:
Discuss the results of the companies in our Portfolio
Our findings during the 1-on-1 call with the CEO of Kelly Partners Group
An update of our ‘To Buy’ list