POOL

Pool Corp is the dominant wholesale distributor of swimming-pool and outdoor-living products, a high-return franchise benefiting from a large recurring maintenance/aftermarket base. The returns metrics remain excellent — 34.3% ROE, 29.7% gross margin, and 11.0% operating margin — and management keeps returning capital aggressively, with $346M of buybacks (up 13.1%, shrinking shares 2.2%) and a growing $185M dividend. This is unquestionably a quality business.

The issue is direction of travel. After a COVID-era pool boom peaked at $748M of net income in FY2022, earnings have declined three straight years — $523M, $434M, and $406M — on essentially flat revenue (FY2025 revenue of $5.29B, down 0.4%). Operating income fell 6.0% and EPS 4.0%, and the post-boom normalization in new-pool construction and big-ticket discretionary demand appears ongoing. More concerning for the balance sheet, operating cash flow dropped 44.5% to $366M, long-term debt rose 31.7% to $1.19B, equity fell 6.9% (partly from the heavy buybacks), and leverage climbed to 2.06x liabilities/equity — the company is funding shareholder returns increasingly with debt as cash conversion weakens.