Leslie’s Is A Stock Analysts Want To Own
Leslies Inc (NASDAQ:LESL) has been around for about 60 years but only went public two months ago. That is surprising because the company is uniquely positioned as the largest supplier of pool and spa supplies and equipment in the U.S. And it's growing by double-digits. Sales of pools and spas have risen more than 25% nationally and that means people need supplies.
"As the dominant retailer in a fragmented direct-to-consumer pool & spa supplies industry, Leslie's has a significant competitive advantage over its peers, which do not have the omnichannel capabilities, services, or scope of reach as Leslie's... We believe that LESL has a margin and growth profile that warrants a premium multiple to other retailers, and our EV/EBITDA valuation of 24x takes this into account,” said Bank of America (NYSE:BAC) when it initiated coverage at neutral.
Leslie’s Revenue Growth Hits Record Highs
Leslie’s FQ4 revenue came in at $381.3 million and a full percent ahead of the consensus on strong demand from new and existing pool and spa owners. The caveat is that the 4th quarter of 2020 had an extra week which impacted revenue by 600 basis points. So, revenue is up 27.9% from the previous year and well above industry growth trends but only 21.8% when adjusted for the extra week.
Moving down, the company saw an increase in SG&A costs related to increased sales and COVID but SG&A fell as a percentage of sales. On an operating basis, income increased 15.5% over the last year while net income increased to $42.1 million from $0.8 million last year. On the bottom line, the GAAP eps of $0.27 beat by $0.07 while adjusted EPS came in a penny higher and beat by $0.08. Last year the company clocked a whopping $0.00 per share in earnings for the 4th quarter. Looking forward, the company sees sales and EPS for next year in a range above the consensus estimate of $0.50.
One of Leslie’s attractive features is its eCommerce channels. The company not only sells a high-demand product but it is available direct-to-consumer across the Internet. Analyst Jonathan Matuszewski of Jeffries says "At 3.2M members and growing, Leslie's loyalty program has boosted market share gains since its launch in '14 and we believe could lift comps beyond Street expectations in '21. With a lean into digital marketing and forthcoming loyalty program enhancements, we see enrollment gains higher than the Street and upside to the multiple…”
Leslie’s Trades At A High Multiple
Shares of Leslie’s are highly valued trading at over 70X 2020 earnings and 45X the 2020 guidance but there is the growth to consider. This company is in a position to take a lot of market share and keep it long after the pandemic is gone. The outlook for 2021 is more than robust with earnings expected to grow nearly 70% and the analysts are on board as well. There have been eight analyst ratings since the IPO with four outright buy-ratings and four either neutral or equal weight. In regards to an IPO, neutral or equal weight is as good as a buy rating.
The Technical Outlook: Early Bulls Cut Losses, Traders Take Profits
Shares of LESL popped on the news and opened at the highest level since early November. The bad news is that early bulls looking to cut their losses and traders taking profits on the recent rally used the pop to get out. Price action closed well off of the highs creating a long red candle that confirms the existence of resistance if not the top of a trading range. In the near-term, price action may continue to fall or trend sideways within the range. A move lower may find support at the $22 level. If price action moves higher from here I would be very cautious until a new high is set.
