Pool (POOL) has drawn attention after its latest quarterly earnings and a fresh update on long running share repurchases. Together, these announcements give you new information about profitability and capital returns.

Pool’s latest earnings and continued buybacks come after a tougher stretch for investors, with the share price at $184.61 and a 1-year total shareholder return that declined 41.29%, while the 5-year total shareholder return fell 58.52%. The 30-day share price return declined 12.76% and the 90-day share price return declined 14.64%, which suggests recent sentiment has weakened despite the ongoing capital return program.

If Pool’s recent pullback has you reassessing where to put fresh capital, this can be a good moment to widen your watchlist and check out 18 top founder-led companies

Pool still appears to be a solid operator in pool supplies and outdoor living, yet the share price has retreated sharply. Does that pullback leave you with an attractively priced business, or a stock that still asks too much?

Most Popular Narrative: 27.9% Undervalued

Pool’s most followed narrative points to a fair value of $255.91 a share, compared with the last close at $184.61. That gap rests on a detailed view of long term revenue and margin potential, as well as how investors might price those earnings.

The analysts have a consensus price target of $255.91 for Pool based on their expectations of its future earnings growth, profit margins and other risk factors.

However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $300.0, and the most bearish reporting a price target of just $210.0.

The narrative focuses on steady revenue growth, a modest lift in margins, and a richer future earnings multiple. Want to see which assumptions really carry that valuation, and how much depends on buybacks versus organic profit growth?

Result: Fair Value of $255.91 (UNDERVALUED)

However, Pool’s reliance on mature North American housing markets, along with pressure on margins from inflation and customer mix, could still challenge the bullish narrative.

Another View On Pool’s Valuation

The first narrative paints Pool as 27.9% undervalued on a fair value of $255.91 a share. However, at $184.61, the stock trades on a P/E of 16.9x, which is higher than the Global Retail Distributors industry at 15.2x, peers at 13.2x, and a fair ratio of 13.7x. That richer multiple suggests less room for error. If earnings or sentiment fall short, how comfortable are you paying above both sector and fair ratio benchmarks?

Next Steps

If the mixed messages around Pool leave you unsure, consider acting promptly to review the data, compare the risks, and weigh the potential rewards for yourself with 4 key rewards and 1 important warning sign

Looking for more investment ideas beyond Pool?

If Pool has you rethinking your next move, do not stop at one stock. Use this moment to broaden your opportunity set and stress test your ideas.

• Start with companies that combine quality and value by scanning through 51 high quality undervalued stocks and see which businesses match your return and risk preferences.
• Prioritise balance sheet strength by reviewing the solid balance sheet and fundamentals stocks screener (49 results) to find stocks that may handle tougher conditions with more financial resilience.
• Hunt for lesser known opportunities through the screener containing 20 high quality undiscovered gems so you are not relying only on the most widely followed stocks.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.