Over the past six months, Malibu Boats’s stock price fell to $23.66. Shareholders have lost 9.9% of their capital, which is disappointing considering the S&P 500 has climbed by 16.2%. This might have investors contemplating their next move.
Is there a buying opportunity in Malibu Boats, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Malibu Boats Will Underperform?
Despite the more favorable entry price, we’re sitting this one out for now. Here are three reasons we avoid MBUU, plus one stock we’d rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Malibu Boats struggled to consistently increase demand as its $914.6 million of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and signals it’s a low quality business.
2. Free Cash Flow Projections Disappoint
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Over the next year, analysts’ consensus estimates show they’re expecting Malibu Boats’s free cash flow margin of 4.7% for the last 12 months to remain the same.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Over the last few years, Malibu Boats’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Malibu Boats doesn’t pass our quality test. After the recent drawdown, the stock trades at 9.4× forward P/E (or $23.66 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. Let us point you toward one of our all-time favorite software stocks.
Stocks We Like More Than Malibu Boats
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