The past six months have been a windfall for MarineMax’s shareholders. The company’s stock price has jumped 79.7%, hitting $52.16 per share. This 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? See what our analysts have to say in our full research report, it’s free.
Why Do We Think MarineMax Will Underperform?
We’re glad investors have benefited from the price increase, but we’re cautious about MarineMax. Here are three reasons we avoid 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 3% 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 54.7% annually over the last three years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking 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 $1.11 billion of debt exceeds the $174.8 million of cash on its balance sheet. Furthermore, its 9× net-debt-to-EBITDA ratio (based on its EBITDA of $108 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 cheer for all companies serving everyday consumers, but in the case of MarineMax, we’ll be cheering from the sidelines. Following the recent rally, the stock trades at 37.6× forward P/E (or $52.16 per share). This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward one of our top digital advertising picks.
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