Latham Group’s SWOT analysis: fiberglass pool maker’s stock navigates market currents

Latham Group , Inc. (NASDAQ:SWIM), a leading designer and manufacturer of in-ground residential swimming pools with a market capitalization of $680 million, finds itself at a crossroads as it navigates a challenging market environment while positioning for future growth. The company’s stock has shown remarkable resilience, posting a 57% return over the past year despite recent market volatility. As the largest manufacturer of fiberglass pools in North America, Australia, and New Zealand, Latham’s fortunes are closely tied to the broader housing market and consumer discretionary spending trends.

According to InvestingPro analysis, while the company faces near-term headwinds, analysts expect net income growth this year, suggesting potential turnaround opportunities ahead. InvestingPro subscribers have access to over 10 additional key insights about SWIM’s performance and prospects.

Industry Overview and Market Position

Latham Group operates in a market that has experienced significant headwinds in recent years. The new pool construction market has softened considerably, with pool starts down nearly 50% from calendar year 2021 levels. This downturn has forced the company to adapt its strategies and optimize its operations to weather the storm.

Despite these challenges, Latham maintains a strong position in the fiberglass pool segment, which currently represents about 22% of the industry mix. The company’s financial health shows promise, with a current ratio of 2.55 indicating strong liquidity to meet short-term obligations. Analysts note that fiberglass pools are expected to gain market share from traditional concrete pools due to their lower costs and reduced labor requirements. This trend could play to Latham’s strengths, as the company holds an estimated 50% market share in the fiberglass pool category.

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Financial Performance and Projections

The company’s financial performance reflects the broader industry challenges. Current revenue stands at $509.3 million for the last twelve months, with a gross profit margin of 30.6%. For fiscal year 2024, analysts project revenue of approximately $505 million, with expectations of modest growth to $530 million in fiscal year 2025 and $555 million in fiscal year 2026. These projections suggest a gradual recovery in the pool market, albeit from a lower base.

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Adjusted EBITDA is expected to show improvement over the same period, with estimates of $79.6 million for FY2024, rising to $90.4 million in FY2025 and $100.7 million in FY2026. This trajectory indicates potential for margin expansion as the market stabilizes and the company’s cost-cutting measures take effect.

Earnings per share (EPS) estimates vary among analysts, with projections ranging from $0.05 to $0.18 for the upcoming fiscal year, and $0.06 to $0.25 for the following year. The wide range in estimates underscores the uncertainty surrounding the pace of recovery in the pool industry.

Strategic Initiatives and Operational Efficiency

Latham Group has not remained idle during the market downturn. The company has undertaken several strategic initiatives aimed at improving its competitive position and operational efficiency. These efforts include:

1. Enhancing fiberglass penetration in the market through targeted marketing and education initiatives.

2. Implementing lean value engineering practices to support margins despite external challenges such as weather events and market softness.

3. Optimizing manufacturing processes to increase efficiency and reduce costs.

4. Focusing on the value proposition of fiberglass pools to drive adoption and market share gains.

These initiatives have helped Latham maintain relatively stable margins even as the overall market has contracted. Analysts note that the company’s efforts to right-size its cost structure during the downturn could lead to strong operating leverage as revenue growth returns.

Future Outlook and Growth Drivers

Looking ahead, several factors could contribute to Latham Group’s growth trajectory. Analyst consensus shows optimism, with price targets ranging from $4.50 to $10.00 per share, suggesting potential upside from current levels. The company’s beta of 1.72 indicates higher volatility than the broader market, which could present opportunities for tactical investors.

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1. Pent-up demand: As home equity has grown and interest rates are expected to stabilize or decline, there is potential for pent-up demand in the pool market to be released.

2. Fiberglass market share gains: The ongoing shift from concrete to fiberglass pools is expected to continue, benefiting Latham as a market leader in this segment.

3. Geographic concentration: Latham’s focus on "sand states" could be advantageous as these areas typically have higher demand for pools.

4. Potential M&A activities: The company may pursue strategic acquisitions to enhance its market position and product offerings.

Analysts anticipate a possible return to growth in fiscal year 2025, driven by a combination of improved industry volumes and potential market share gains. However, this outlook is tempered by ongoing consumer uncertainty and the cyclical nature of the housing market.

Bear Case

How might continued softness in new pool construction impact Latham’s growth?

Persistent weakness in new pool construction poses a significant challenge to Latham Group’s growth prospects. With pool starts already down substantially from peak levels, any further deterioration or prolonged stagnation in the market could pressure the company’s revenue and profitability. Latham’s heavy reliance on new pool installations makes it particularly vulnerable to cyclical downturns in the housing market and discretionary consumer spending.

A protracted period of soft demand could lead to intensified competition among pool manufacturers, potentially eroding profit margins as companies vie for a shrinking pool of customers. This could force Latham to increase marketing expenditures or offer price concessions to maintain market share, further impacting its bottom line. Additionally, if the downturn persists, it may delay the expected market share gains for fiberglass pools, a key growth driver for Latham.

What risks does consumer uncertainty pose to Latham’s business model?

Consumer uncertainty remains a significant headwind for Latham Group. As a manufacturer of discretionary products, the company is highly sensitive to fluctuations in consumer confidence and spending patterns. Economic factors such as inflation, interest rates, and employment levels can greatly influence a homeowner’s decision to invest in a pool.

If consumer uncertainty persists or worsens, it could lead to delayed purchasing decisions or cancellations of planned pool installations. This uncertainty may also cause consumers to opt for lower-cost alternatives or forego pool purchases altogether, potentially impacting Latham’s sales mix and average selling prices. Moreover, prolonged consumer caution could hinder the company’s efforts to promote the adoption of fiberglass pools, which often require a higher upfront investment compared to some traditional options.

Bull Case

How could increasing fiberglass penetration benefit Latham’s market position?

The ongoing shift towards fiberglass pools presents a significant opportunity for Latham Group to strengthen its market position. As the largest manufacturer of fiberglass pools with an estimated 50% market share in this segment, Latham is well-positioned to capitalize on this trend. Fiberglass pools offer several advantages over concrete pools, including lower installation costs, reduced maintenance requirements, and faster installation times.

As awareness of these benefits grows among consumers and pool builders, the market share of fiberglass pools is expected to expand. This shift could drive increased demand for Latham’s products, potentially leading to higher sales volumes and improved market penetration. Furthermore, as a leader in fiberglass pool technology, Latham may be able to command premium pricing and maintain strong margins as the market evolves.

The company’s focus on marketing the value proposition of fiberglass pools could accelerate this trend, further cementing Latham’s position as a market leader and potentially allowing it to outperform the broader pool market even in challenging economic conditions.

What potential does Latham have for margin expansion in a recovery scenario?

In a market recovery scenario, Latham Group appears well-positioned for potential margin expansion. The company has undertaken significant cost-cutting measures and operational improvements during the recent downturn, including lean value engineering efforts and manufacturing efficiency enhancements. These initiatives have helped Latham maintain relatively stable margins despite challenging market conditions.

As the pool market recovers and sales volumes increase, Latham could benefit from strong operating leverage. The streamlined cost structure implemented during the downturn would allow a larger portion of incremental revenue to flow through to the bottom line. Additionally, if the shift towards higher-margin fiberglass pools continues, this could further support margin expansion.

Latham’s potential for margin improvement is also supported by its market leadership position, which may provide pricing power and economies of scale. As demand recovers, the company could gradually raise prices or reduce promotional activities, further boosting profitability. The combination of operational efficiency, product mix improvements, and market leadership could drive significant margin expansion in a recovery scenario, potentially outpacing revenue growth and leading to substantial earnings improvement.

SWOT Analysis

Strengths:

• Market leader in fiberglass pools with 50% market share
• Optimized cost structure through lean value engineering
• Strong presence in key "sand states" markets
• Diversified product portfolio including vinyl liners and covers

Weaknesses:

• High exposure to cyclical housing and discretionary spending markets
• Geographic concentration may limit growth in other regions
• Dependence on new pool construction market

Opportunities:

• Increasing adoption of fiberglass pools over concrete
• Potential for market share gains as industry recovers
• Possible M&A activities to expand product offerings or market reach
• Pent-up demand from growing home equity

Threats:

• Prolonged softness in new pool construction market
• Consumer uncertainty affecting discretionary spending
• Interest rate fluctuations impacting housing market and financing availability
• Potential for increased competition in the fiberglass pool segment

Analysts Targets

• Barclays (LON:BARC): $6.00 (May 8th, 2025)
• Barclays: $6.00 (March 5th, 2025)
• Craig-Hallum: $10.00 (December 9th, 2024)
• Barclays: $6.00 (November 21st, 2024)
• Barclays: $6.00 (November 6th, 2024)

Latham Group, Inc. faces a complex market environment with both challenges and opportunities on the horizon. While the near-term outlook remains cautious due to ongoing softness in the new pool construction market, the company’s strong position in the growing fiberglass segment and its operational improvements provide a foundation for potential growth as market conditions improve. Investors and industry observers will be closely watching for signs of a market recovery and Latham’s ability to capitalize on emerging trends in the pool industry.

This analysis is based on information available up to May 26, 2025, and market conditions may have changed since then.

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