Over the past six months, Hayward’s shares (currently trading at $12.31) have posted a disappointing 9.1% loss, well below the S&P 500’s 17.5% gain. This might have investors contemplating their next move.
Is there a buying opportunity in Hayward, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Hayward Not Exciting?
Even though the stock has become cheaper, we’re sitting this one out for now. Here are three reasons you should be careful with HAYW, plus one stock we’d rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Hayward struggled to consistently increase demand as its $1.17 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and signals it’s a lower quality business.
2. Shrinking Operating Margin
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses — everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Analyzing the trend in its profitability, Hayward’s operating margin decreased by 3.1 percentage points over the last five years. Even though its historical margin was healthy, shareholders will want to see Hayward become more profitable in the future. Its operating margin for the trailing 12 months was 21.1%.
3. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Hayward, its EPS declined by 22.8% annually over the last five 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.
Final Judgment
Hayward isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 13.5× forward P/E (or $12.31 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We’re fairly confident there are better investments elsewhere. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Like More Than Hayward
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