Here’s why Pool Corp. stock crashed in the first half of 2024.

Wholesale swimming supplies distributor Full Corporation‘S (swimming pool -0.14%) According to data provided by S&P Global Market Intelligence, the stock fell 22.9% in the first half of 2024.

In addition, the stock fell 9% after the company updated the market on pool season and immediately announced that new pool construction activity could decline by 15% to 20% in 2024. In addition, management now believes that remodeling activity could decline by up to 15% in 2024, down from its previous flat growth estimate of a 10% decline.

Pool Corp.’s maintenance products held up pretty well. Equipment sales were down 2% in the first half, but revenue from discretionary spending products was down significantly. In short, homeowners are dealing with a tough housing market and are holding off on “spending on big-ticket items like pools and outdoor living projects,” the company said in its update.

Do you become greedy when others are fearful?

The market already expects weak consumer spending on housing-related discretionary spending in 2024, a scenario that is likely to persist as long as the Fed delays rate cuts.

However, it is interesting to note that the stock has recovered from the selloff since the update and is trading at similar levels to where it was before the disappointing June 24 update. This likely reflects a sentiment that there is nothing fundamentally wrong with Pool Corp.’s business, and that the low interest rate environment should push discretionary revenue growth back into positive territory. Additionally, the pool installed base is still growing, which should support maintenance product sales in the long term.

Accordingly, investors are taking advantage of falling stock prices to acquire shares in companies with superior long-term growth prospects.

Image credit: Getty Images.

Which stocks should I buy?

Management cut its full-year earnings guidance to $11.04 to $11.44 from its previous estimate of $13.19 to $14.19. The midpoint of the updated guidance puts Pool Corp. at a price-to-earnings ratio of about 30 times earnings. Still, that’s a valuation based on what is likely to be the low point of annual earnings. For a company that could disappoint again this summer, it’s hard not to think it’s still a high valuation.

So while Pool Corp. is a great company, its current valuation is likely not something many investors would feel comfortable buying.