MarineMax has been on fire lately. In the past six months alone, the company’s stock price has rocketed 49.3%, reaching $34.91 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy MarineMax, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think MarineMax Will Underperform?
We’re glad investors have benefited from the price increase, but we don’t have much confidence in MarineMax. Here are three reasons why there are better opportunities than HZO, plus one stock we’d rather own.
1. Shrinking Same-Store Sales Indicate Waning Demand
Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
MarineMax’s demand has been shrinking over the last two years as its same-store sales have averaged 1.6% annual declines.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for MarineMax, its EPS declined by 66.6% annually over the last three years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.
3. High Debt Levels Increase Risk
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
MarineMax’s $1.21 billion of debt exceeds the $189.1 million of cash on its balance sheet. Furthermore, its 11× net-debt-to-EBITDA ratio (based on its EBITDA of $92.26 million over the last 12 months) shows the company is overleveraged.
At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. MarineMax could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.
We hope MarineMax can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
We see the value of companies helping consumers, but in the case of MarineMax, we’re out. After the recent rally, the stock trades at 33.5× forward P/E (or $34.91 per share). This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere. We’d suggest looking at the most dominant software business in the world.
Stocks We Like More Than MarineMax
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