Hayward Inventory: A Nice Play On The Pool Market (NYSE:HAYW)

For many who can afford them, swimming swimming pools could be a superb solution to relieve stress, have enjoyable, and get train. Fortunately for traders who favored the pool area, there are a couple of corporations which can be publicly traded devoted to offering totally different items of this market. One prospect that matches into this description is Hayward Holdings (HAYW). Over the previous three years for which knowledge is accessible, the corporate has achieved extremely properly to develop its high line and its profitability. Not solely that, shares of the enterprise are buying and selling at ranges that must be thought-about fairly low presently. That is true not solely on a relative foundation, however on an absolute foundation as properly. Including all of this collectively, the corporate appears to be like to make for a compelling alternative for affected person, long-term, value-oriented traders.

Taking a dip with Hayward Holdings

Hayward Holdings describes itself as a designer, producer, and marketer of a big portfolio of pool gear and associated automation programs. Although it could be a mistake to say that the corporate’s focus is on the sale and set up of swimming swimming pools themselves. As a substitute, the corporate actually does deal with the gear class right here. Actually, throughout its 2020 fiscal 12 months, the corporate claimed that about 75% of its income got here from aftermarket gross sales. The remaining 25% of income is expounded to new pool building actions. In all, The only largest class for the corporate, from a income perspective, could be pumps and heating gear. Every of those, individually, account for 19% of the corporate’s total gross sales. Subsequent in line, we have now automation and sanitation merchandise, representing 17% of gross sales. That is adopted intently by filters at 14%. The corporate additionally sells cleaners, lighting gear, move management gear, and extra.

Although, at first look, a few of this may occasionally appear boring, it’s fascinating to notice that the corporate it isn’t simply targeted on promoting conventional merchandise. As a substitute, administration is actually diving into the IoT (Web of Issues) area. A number of occasions all through its investor paperwork, the corporate mentions the shift that it’s making towards IoT, even boasting that its merchandise embrace a big line of superior IoT-enabled controls, alternate pure sanitizers geared toward decreasing chemical utilization, energy-efficient pumps, LED lights, heaters, automated cleaners, and automated filters. Within the three years ending in 2020, the corporate even launched 59 new merchandise and, at the moment, it owned round 350 patents plus 135 patent purposes that have been pending. Administration continued to make important investments into the IoT area all through the 2021 fiscal 12 months. Although phrases weren’t disclosed, the corporate acquired two totally different IoT Late final 12 months, one in every of these being known as SmartPower, and the opposite known as SmartValve. The previous of those focuses on LED controller applied sciences, whereas the latter offers energetic fluid administration programs for the clever management of a number of, superior water options.

Due to when the corporate went public, we actually solely have full monetary knowledge protecting the corporate’s 2019 and 2020 fiscal years. In 2019, gross sales got here in at $733.4 million. Income then elevated to $875.4 million in 2020. Thankfully for traders, we do know a few of what 2021 ought to appear to be. It’s because administration not too long ago introduced expectations for the 12 months, with income prone to are available in at about $1.40 billion.

In terms of profitability, the image has additionally been optimistic over the brief time that we have now to take a look at. Internet earnings in 2019, as an example, was simply $8.5 million. This jumped to $43.3 million in 2020. For the 2021 fiscal 12 months, administration stated that earnings ought to vary from between $191 million and $199 million. On the midpoint, that may signify a rise over the 2020 fiscal 12 months earnings of 350.3%. In fact, there are different profitability metrics to contemplate. EBITDA, as an example, Grew from $172.4 million in 2019 to $231.6 million in 2020. Administration presently anticipates this determine coming in at between $418 million and $423 million for the 2021 fiscal 12 months. Working money move, in the meantime, expanded from $94 million in 2019 to $213.8 million in 2020. The corporate didn’t present any detailed steering for this metric for the 2021 fiscal 12 months. Nevertheless, if we assume the identical sort of progress price for this that we are going to see with EBITDA, then a studying of round $388.2 million should not be surprising. On high of all of this nice information, it is price noting that administration, not too long ago, introduced a $450 million share buyback program. Although phrases weren’t disclosed, the corporate has already bought again 4.08 million shares of its inventory. If achieved at present pricing, that may indicate almost $75 million in money outlays for the shares.

Taking this knowledge, we will successfully value the corporate. Utilizing the 2021 estimates, the corporate is buying and selling at a price-to-earnings a number of of twenty-two.4. In the meantime, the worth to working money move a number of is significantly decrease at 11.2. And the EV to EBITDA a number of for the agency is about 12. To place this all in perspective, I made a decision to match the corporate to 3 different publicly traded pool-oriented companies. On a price-to-earnings foundation, these corporations vary from a low of 28.9 to a excessive of 30.4. Although it must be stated that one of many three corporations didn’t have optimistic earnings, so we’re left evaluating Hayward Holdings to solely two companies on this foundation. Even so, our prospect was the most cost effective of the group. On a value to working money move foundation, the vary was 24.6 to 54.1. As soon as once more, our prospect was the most cost effective of the group. And utilizing the EV to EBITDA strategy, the vary was 18.4 to 370.9. On this case, simply as within the others, Hayward Holdings what is the most cost-effective prospect examined.

Firm	Value / Earnings	Value / Working Money Circulation	EV / EBITDA
Hayward Holdings	22.4	11.2	12.0
Pool Company (POOL)	30.4	49.8	22.8
Leslie’s (LESL)	28.9	24.6	18.4
Latham Group (SWIM)	N/A	54.1	370.9

Takeaway

Regardless of the way you stack it, I can not assist however to assume that Hayward Holdings is a strong long-term alternative for traders to get pleasure from. Each natural progress and acquisitions are serving to to push income and profitability larger for the corporate. Usually, such robust progress would come at a excessive price. However that doesn’t look like the case right now. Shares of the corporate truly look fairly reasonably priced at present pricing. Actually, the corporate appears to be like low-cost relative to the competitors and it’s low-cost on an absolute foundation. There’s all the time some danger {that a} downturn available in the market might push income and money flows and earnings decrease. However that is the case for any type of firm. So for many who are in it for the lengthy haul, I do assume that, barring some giant financial downturn, Hayward Holdings is a positive danger to reward prospect at current.