Optimist Fund’s Bet on Latham Group ($SWIM): Capitalizing on the Fiberglass Pool Boomup
Latham Group is the leading manufacturer of fiberglass pools in the United States, and Optimist Fund believes the company is set to significantly increase earnings over the next 5 years. Key points about Latham Group ($SWIM):
- Fiberglass pools currently make up around 22% of new pool starts in the U.S., up from 16% in 2019 and 4% in 2000. Fiberglass is gaining share from concrete and vinyl pools due to lower maintenance costs, faster installation, and better design.
- Optimist Fund believes U.S. fiberglass pool penetration will surpass 30% over the next decade, as has already happened in other countries where the market adoption started earlier.
- Latham has three key growth drivers: industry new pool starts, continued growth in fiberglass pool penetration, and expanding its ancillary product offerings.
- The pool industry has faced challenges over the past 2-3 years, with new pool starts collapsing around 50% as interest rates rose. Latham’s adjusted EBITDA has declined over 50% during this downturn, and the stock price dropped from $30 to $2 by the end of 2023.
- Optimist Fund started buying Latham shares in the $2.50 range, with an average cost of around $3.25. They believe that as the pool market normalizes and fiberglass penetration continues increasing, Latham can 4x its adjusted EBITDA over the next 5 years.
- The fund’s 5-year price target for Latham ($SWIM) is $50, which would represent a ~600% return from the current price of $7 and equates to a 25x multiple on their estimated 2029 earnings per share of $2.
In summary, Optimist Fund views Latham Group ($SWIM) as an attractive, asymmetric investment opportunity given the expected recovery in the pool industry and Latham’s leading position in the growing fiberglass pool market.
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