MarineMax has gotten torched over the last six months - since October 2024, its stock price has dropped 40.9% to a new 52-week low of $17.84 per share. This might have investors contemplating their next move.
Is now the time to buy MarineMax, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Despite the more favorable entry price, we don't have much confidence in MarineMax. Here are three reasons why there are better opportunities than HZO and a stock we'd rather own.
Why Is MarineMax Not Exciting?
Appropriately headquartered in Clearwater, Florida, MarineMax (NYSE: HZO) sells boats, yachts, and other marine products.
1. Shrinking Same-Store Sales Indicate Waning Demand
Same-store sales is a key performance indicator used to measure organic growth at brick-and-mortar shops for at least a year.
MarineMax’s demand has been shrinking over the last two years as its same-store sales have averaged 1.1% annual declines.
2. Cash Burn Ignites Concerns
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.
MarineMax’s demanding reinvestments have drained its resources over the last two years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 7.8%, meaning it lit $7.76 of cash on fire for every $100 in revenue.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
MarineMax burned through $148.1 million of cash over the last year, and its $1.32 billion of debt exceeds the $145 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the MarineMax’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of MarineMax until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
MarineMax isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 7× forward price-to-earnings (or $17.84 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now. Let us point you toward an all-weather company that owns household favorite Taco Bell.
Stocks We Would Buy Instead of MarineMax
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