FPA Queens Road Small Cap Value Fund on Hayward Holdings, Inc.
Thesis
Hayward sells pumps, heaters, filters and other residential pool equipment into an oligopolistic industry. Replacement and remodeling account for much of sales, supporting pricing power despite a slowdown in new pool construction. Concerns about higher rates and the post-Covid normalization allowed the fund to initiate a position at 15 times current-year earnings.
“These worries allowed us to purchase shares at the attractive price of 15x this year’s earnings.”
Key risks
- Industry demand is still normalizing after Covid
- Higher interest rates may further reduce new pool construction
- Slower existing-home sales could weaken demand