Reverse Engineering Berkshire’s POOL Investment: Buying a Great Company in a Lull
In addition to presenting high-conviction investment ideas, we also reverse engineer great investor’s thesis to improve our process. Pool Corp. has a leading position in a good industry and has demonstrated the ability to consistently grow FCF/share in the mid-teens with a high ROIC. The current post-covid pool industry downturn has led to negative sentiment and long-term inventors of great companies such as Berkshire see this as an opportunity to buy a great company at a “fair” price.
We use a reverse DCF to impute that consensus expects FCF to grow in the mid single-digits, which is below historical levels. While it is unclear if the pool industry is “out of the woods” yet based on expert network channel checks from AlphaSense, it is likely based on peer ‘25 revenue growth commentary that Pool Corp. might envision a return to low single-digit growth in 2025 as consensus expects (+3.4%). This might cause some of the remaining 2.6 MM (7% of float) shares short (down from 4.4 MM shares in 2023) to abandon their thesis. Earnings revisions will be the key.
