Pool Corporation: A Spot of Sanity

The year of twenty-six is proving to be a bit of a lark, what with the “Magnificent Seven” stocks behaving rather like startled grouse and the software brigade experiencing drawdowns that would give even the most stout-hearted investor a touch of the vapours. Everyone’s terribly busy trying to divine what all this AI business – Artificial Intelligence, you know – will actually do to one’s portfolio. A dashedly complicated business, this investing.

But one needn’t always chase after the latest buzzing thingamajig to achieve a decent return, you see. I’ve been casting a discerning eye over the market, and have alighted upon a rather unpretentious little company called Pool Corporation (POOL +1.80%), distributors of all things piscine. Up over fourteen percent year-to-date, it is, and I suspect there’s a good deal more where that came from. Rather like a well-maintained swimming pool, it just keeps on giving.

So, this month, I find myself recommending Pool Corp – the very same stock I championed last month – as my top dividend idea. A bit of consistency, you see, is a rare and valuable thing these days.

An Anti-AI Proposition

The first reason for my enthusiasm isn’t so much about dividends as it is about a remarkably sensible business model. It’s a rather bracing antidote to all the AI-fueled speculation currently gripping the market. Rather like a stiff gin and tonic on a sweltering afternoon.

Tech giants, you see, are embarking on spending sprees of truly astronomical proportions, all in the name of this Artificial Intelligence. Meta Platforms, Alphabet, and Amazon, for instance, are proposing to lay out sums exceeding a hundred billion dollars on capital expenditures, a substantial portion of which will be devoted to cloud computing infrastructure capable of powering these digital brainwaves. Amazon, in fact, is contemplating a budget of around two hundred billion dollars. A considerable gamble, wouldn’t you say? Investors are, essentially, trusting that these massive wagers will pay off eventually. A touch precarious, if you ask me.

Pool Corporation, on the other hand, operates with a delightful simplicity. It’s demonstrated a perfectly respectable level of profitability. On sales of roughly $1.5 billion in the last quarter, the company conjured up $127 million in net income. Moreover, earnings-per-share grew by four percent, even though revenue only edged up by one percent. A rather neat trick, that. This contrasts sharply with the situation at some of these tech behemoths, where spending is starting to nibble away at margins. Meta’s fourth-quarter earnings per share rose eleven percent, despite a twenty-four percent increase in revenue. This was achieved, however, by a decline in operating margin from forty-eight percent to forty-one percent. A rather worrying trend, what? Such deleveraging could plague many tech companies in the coming months and years, as their AI ambitions put a strain on their resources.

Why Sales Growth Could Accelerate

Furthermore, Pool Corporation is currently navigating a rather challenging macroeconomic climate, where large discretionary purchases are feeling the pinch of elevated interest rates. But sales could really take off if rates were to decline. And even if they don’t, over sixty percent of the company’s sales come from maintenance – a remarkably consistent source of revenue. So, even if sales from new pool projects remain sluggish, overall growth should pick up as the company faces easier comparisons.

Management, it seems, is cautiously optimistic. They’ve reported “encouraging signs of stabilization” in both new pool construction and remodeling. While there’s no guarantee of a recovery, it shouldn’t be dismissed entirely. Eventually, aging pools will need replacing, and new projects could ramp up even with current interest rates if demand picks up. A bit of a long shot, perhaps, but one can always hope.

And, of course, there’s the dividend itself. Investors purchasing the stock today can enjoy a robust yield of 1.9 percent. Moreover, the company’s payout ratio of 45 percent leaves ample room for future growth.

Pool Corporation is also returning capital to shareholders through share repurchases. They’ve repurchased $164 million worth of shares in the first nine months of last year – not bad for a company with a market capitalization of $9.8 billion.

Overall, Pool Corporation appears attractive at its current valuation of 24 times earnings. While there’s a risk that sales could suffer if the market for pool construction and remodeling worsens, there’s significant upside potential if it recovers. In aggregate, I believe the stock offers a balanced risk-reward profile and a welcome contrast to the market’s rather exuberant appetite for AI-related risks. A bit of common sense, you see, can go a long way.

2026-02-11 05:14

An Anti-AI Proposition

Why Sales Growth Could Accelerate

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