Shares of the United States' largest pool supplies distributor, Pool Corporation (NASDAQ: POOL), were up 5% as of 1 p.m. ET on Thursday, according to data provided by S&P Global Market Intelligence.
Buoyed by news earlier today that inflation continued to ease, Pool Corporation's stock popped on the higher probability of lower interest rates coming before year's end.
Is the end of a down cycle finally in sight?
Thanks to the easing inflation seen in Thursday's most recent report, a 25-basis-point rate cut now has an 88% chance of happening in September (it was 68% a week ago) and 52% likelihood in December, according to CME, a financial services company.
These potentially lower interest rates are important to Poolcorp because it generates roughly 14% of its sales from new pool construction.
These new pools tend to follow new housing starts in the U.S., which should theoretically rise with these interest rate cuts and the country's undersupplied housing inventory continuing to play catch-up. Lower rates could also help make renovating and remodeling pools slightly more affordable. Renovation and remodeling accounted for 24% of the company's revenue, management said earlier this year.
Down 46% from its all-time highs, Poolcorp's stock could be in the early stages of a rebound as its more-cyclical business segments see some signs of relief further down the road. Ultimately, Poolcorp is tied to the cyclical U.S. housing industry, but it generates over 60% of its sales from nondiscretionary and recurring purchases like pool chemicals, filters, and other maintenance products.
Thanks to this stable sales base, management still expects the company to make a little over $11 in earnings per share in 2024, leaving it at a valuation that could prove to be a once-in-a-decade opportunity over the long haul.
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Josh Kohn-Lindquist has positions in Pool Corporation. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
