Chit Chat Stocks - Pool Corporation (Ticker: POOL) with Simon Handrahan

Episode Date: March 9, 2023

POOL Corporation (POOL) is the world's largest wholesale distributor of swimming pools and related backyard products, serving over 120,000 customers in North America, Europe, and Australia. Listen as Brett and Ryan ask questions about the company, its business model, and valuation. Enjoy the show! ***************************** This episode is sponsored by Stratosphere.io, a web-based terminal for financial data, KPIs, and more. Try it out for FREE or use code “CCM” for 15% off any paid plan. Sign up here: https://www.stratosphere.io/ ***************************** Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney  Subscribe to our Substack to receive free show notes and charts that go along with every episode: https://chitchatmoney.substack.com/ Interested to see more of Simon's work? Check out their Twitter here: https://twitter.com/MoS_Investing?s=20 Contact us: [e-mail] Timestamps Pool Corporation | (2:37) Revenue | (8:59) Acquisition Strategy | (17:41) Digital | (29:58) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. My name is Ryan Henderson, and I am joined by my co-host, Brett Schaefer. Today, we have our Thursday deep dive episode where we interview an analyst to discuss a single stock or industry. And today we have on the show, Simon Handrahan, and he's talking Pool Corp, a basically specialty retailer or distributor of pool supplies and other pool goods. I'll let him kind of discuss the business in more depth, but it was a lot of fun to have him on the show. First time having him on and we can tell that he thinks very similarly to us in terms of investing style and approach. But before we get to the interview, we want to talk about our presenting sponsor, which is Stratosphere. They are our investing home screen for fundamental

research. They have awesome data visualization tools, SEC file aggregation, and custom built KPI tools that you really can't find anywhere else. We use it literally on a daily basis. plenty of new things they're adding all the time. They recently just added employee count. So if you're trying to look at revenue per employee for a business or free cash flow per employee for a business to kind of measure productivity, it's a great place to do that. So ditch Yahoo Finance and up your investing knowledge by using stratosphere.io. That's stratosphere.io. You can also, stratosphere is completely free, but if you're interested in getting one of the upgraded paid plans. You can use promo code CCM for 15% off. If you're more

interested in the platform, stick around after the episode. We have a quick little three-minute interview with the founder, Braden Dennis. But without further ado, here's our interview with Simon Handrahan. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guest is not

formal advice or recommendation. Now, please enjoy this episode. Okay, today we are welcomed by Simon Handrahan, first-time guest, so this is our first time uh get in the chat although we've kind of engaged over twitter a couple of times he is the author or the creator of the margin of safety investing sub stack um and he's he's got a lot of writing up over there so if you enjoy this feel free to check it out but today we are talking about pool corp which is surprisingly a more polarizing stock than i thought um so i guess maybe before we get into like the basics of the business how did you even come across it yeah thanks ryan um yeah thanks

for having me guys and uh yeah i guess this one was uh i would chalk it up to um seeing some discourse on on twitter uh about the name a few years ago it was something that i never really was aware of uh i think it's kind of one of those unsexy names traditionally it's it's a distributor so it's not making like global headlines anywhere um so yeah just uh seeing some discussion on twitter uh really probably around the covet time when there was some uncertainty around like what people were gonna do um even though it was a beneficiary like early on there was a lot lots of thoughts that it probably wouldn't be um before it was understood you know um people were gonna spend more time at home uh so there was lots of back and forth and

And without making too much judgment, I kind of decided that maybe I should look into it. That's when I kind of noticed it was really a longer term kind of compounder compared to what the last couple of years would maybe make it look like with the ups and downs from COVID. Oh, yeah, that's interesting. And we will talk about how they've been, you know, the COVID dynamics and what that kind of means going forward. But when a listener, I think, hears pool corporation, they probably assume that they sell stuff with pools or do something with pools. But what do they specifically sell? What products and services do they offer? What are their important line items on their annual report?

Yeah, for sure. So basically, the model is they'd be correct in assuming they sell stuff around pools. The name is not terribly deceiving that way. uh they sell all kinds of parts um both for like new installation uh you know remodels and upgrades and things like that and there's a lot of uh recurring revenue items like chemicals and um different things that just are required for annual or recurring maintenance throughout the season depending on the location if it's like a seasonal thing or not so like a lot of the items would be like pumps and filters and uh again like chemicals things like that would be a lot of the common

things lately they've been moving into you know more cosmetic upgrades with uh technology and lighting uh you know fancier lighting and stuff so the kind of pools of 40 years ago were a lot more straightforward and um simpler fewer parts and uh pools these days are all decked out uh pardon the pun with all kinds of extra things and gizmos and and that's kind of uh been a growing uh trend as well so um yeah they're not like traditional they're not uh retailing to uh the end users like they've got uh basically their distributors so they've got like 2 000 basically plus or minus suppliers uh um to their network and then they they have like uh something like over 120 000 uh essentially contractors that would do pull maintenance for the end users so

you know you think about most pool owners aren't really doing a lot of the heavy lifting around the maintenance installs upgrades for their pool they're contracting that out so that's uh the the small that they kind of have there okay so kind of yeah kind of a niche retailer i don't want to say i was going to say like a home depot for pool supplies but maybe a little more niche um i guess what what's been you mentioned that it's been a compounder i've kind of seen that that floated around as well um what's been the driver of that and i guess is there kind of a secular trend that's backing this at all yeah it's been um like it's been steady that way so like um a couple a couple couple things have been driving that uh compound growth over the last

really like few decades um you look at the industry they're in it's still fairly fragmented like a lot of the local distributors will be common pop shops and like they're the number one distributor now in the united states but they're still a fairly fragmented industry there so traditionally their growth has been like a combination of acquisitions and organic growth like new centers they've opened they've still been doing quite a few acquisitions they've done did a big one a couple of years ago, mainly in Florida, that one. So yeah, it's been a combination of things. I think the secular trends, there was essentially a big boom in pool, new pool formation as a part of the housing boom, and then the bus kind of crapped on that

after 2008 so there was a big increase there um but really like when you think about pool installs it's it's um a matter of like you've got a pool uh installed when the house is built traditionally or sometimes a little bit later and then once that's there it's not necessarily something that's gonna um go away so often it'll be a feature of the house you're not gonna necessarily buy the house if you don't want the pool so that would be a detractor maybe for someone who doesn't want it but if you have it you're probably going to put money into keeping it versus putting a whole bunch of money into removing it so it's a bit sticky that way so the basically there's been like an install base that's been slowly growing

in the us for quite quite a long time lately there's been like migrations in southern states where pools are obviously kind of more valuable you've got more of a season to use them and so yeah there's there's kind of like secular trends that way as well um if that makes sense it's it's not like there's been one thing that's all of a sudden changed the dynamic of the industry i don't think it's really just like a slow grind upward um and there's been hiccups along the way but overall it's been kind of slowing up into the right now one kind of i don't follow up on that as said you know the installed base has grown do you have or does management talk about the percentage of revenue that comes from these you know maintenance stuff and services and has that

grown over time as a percentage of revenue yeah i don't i don't have all the historical numbers but i know that like right now they traditionally have been quoting around 60 um recurring so like maintenance uh items so i think that's where people i certainly myself open their eyes like a little bit you think about like a pool supply company you probably originally think a lot of the revenue would come from like new installs or even maybe major renos when in reality that's actually a smaller percentage so they they break it down a little bit further so 60 is like recurring maintenance items uh which are like i said because someone's not going to necessarily get rid of their pool very quickly those uh those items are really like pretty sticky in that like if you

don't spend on those items uh every year you're going to end up spending more to kind of pay for your sins of omission uh kind of the next season generally or or whatever so they're really like not discretionary uh and that's where people mostly miss the uh kind of miss the boat unless you look into the business a little bit more. But then, yes, 20% of the revenues from there have traditionally been remodel, major renovations and things like that, and 20% from new construction. Okay. That makes sense. And then I want to talk about the acquisition stuff. But first, I think maybe it's just me, I get a little bit confused on how you're a homeowner and what's the process that someone would go through to pick pool corporations?

so say i'm someone i want to have a pool or i'm a company building a house and i want to have a pool in this house who are you know where do they go do they go to the pool corp store do they go to a pool core website do they talk to a contractor and who are they competing with for that bid like what's that process right um yeah we'll break it down a little bit um i don't have like every detail but i think it's a good question so like what i would say is it's definitely not the end user deciding to go to full corp um they might happen to be familiar with some of their branded uh outlets essentially uh their distribution centers they're really just like warehouses and they have like you know a desk for contractors to go and order parts

the relationship really with full corp is with the um the like the contractors and those service providers so like the basically you've got like a relationship with those existing contractors and what they can offer um these clients is is really the advantage that full corp uh has is their size right so they've got like their network of stores um because of that you've got like that network effect where now you've got suppliers with better access to end users that way so it's more valuable the bigger they get and i think that's been part of the kind of the story as well like as they grow they become more and more um powerful that way um but yeah so if you're a homeowner you talk to like a contractor essentially

a specialist that way you're not necessarily pricing out parts per se right so that's the other kind of advantage that a distributor has with these niche things especially because you're going to buy a pool based on sticker price that the contractor can kind of tell you and one of those inputs is definitely price but from the contractor's perspective what they need is um what they need is like a good supply uh inventory that's available wide selection so that they can go to their customer the homeowner let's say and point out hey here's here's your you know here's your menu of options essentially and so that's where pool corp has an advantage because if you go to a smaller distributor they're not going to have that

selection necessarily or they might be backlogged or they might not have it available whereas the pool corp has a bigger network to pull from so that's kind of the advantage they have over the smaller players is that there's a true size advantage which is like the least amazing sounding thing but it's it's one of those boring things that it's hard to get around like being small is uh kind of a big disadvantage in the distribution business as you can imagine i don't know if that's a question but it's kind of a high level take i guess anyway no yeah that helps are there any um like stats specific stats around market share that you know of um versus like are there any other big players like pool corp or is it mostly those small smaller retail

shops it's mostly smaller i know i don't know specifics to be honest like i know that like private equity has recently been buying up uh some of the smaller players as well in a bid to to roll up like that the industry that way so um the last at least few years they've been a kind of a rising threat that way to the size leadership of pool court i don't know of any like specific publicly listed i could be wrong but i don't think there's any uh top of my head But anyway, yeah, I think the big takeaway, go ahead, Ryan. I was just going to say, you've kind of talked around the recent situation with COVID. Can you explain maybe what's gone on over the last two years that's kind of positioned the business to where it is now?

I saw, I guess it looked like there was quite the revenue acceleration during kind of 2021. Can you describe, I guess, why? Yeah, for sure. So I think everyone would recognize the amount of savings people had during COVID. We had a lot of work from home. So all of a sudden, people's backyards were becoming more and more valuable. To some extent, I'm sure some people decided to build pools that would have never built pools. And then other people maybe decided, I always wanted a pool.

Now is a great time to do it since I'm not commuting to the office five days a week, let's say. um so i think there's a combination of like new customers that maybe never would have done that and uh probably a lot of just pull forward if you want to think of it that way i think we're seeing that now is that like some of that pull forward is starting to to wane and it'll it'll dip down like they're looking at this year kind of projecting some declines in new construction and a little bit in reno as well so yeah like i think that's just a common that's the common story anyway um there was also just a lot of uh inventory issues to to some extent like they they got ahead of it and they built up inventory a lot so that was another thing that kind of

happened um things got pulled ahead and they ordered up and they have lots of inventory and now they're kind of deleveraging from that if you will is i would imagine just kind of guessing based on what the products would be that like these aren't things that depreciate super fast so is it like are the items that they sell or the inventory is it generally like long shelf life items it just takes a while to kind of sell through them yeah i think for the most part that's true i i know that like you know mechanical components and things like that are going to have pretty long relative shelf lives um i'm sure to some extent like it's it's costly to have a big inventory no matter the shelf life so there's probably some uh i don't know that there's like

price cutting it's not like fashion where you're gonna have like big sales just to get rid of inventory that way so i don't think they'll have like negative effects from that overall it's more of just cash flow wise it was a you know a difficult thing to manage um but i think overall it's worked out okay and like you said like there's not a short short uh life for most of these items. So it shouldn't be a huge long-term issue. Yeah, that makes sense. And you mentioned the acquisition strategy. You mentioned the competitive advantages that that drives through their scale. And I guess speaking of inventory, that can be an advantage as well, where some of the smaller players might not be able to have the inventory assortment that a pool corporation has.

Can you talk about the acquisition strategy and how does that enhance their competitive advantage, it or excuse me just competitive advantage has it you know widened over time you think maybe over the last 5 10 20 years yeah um it's it's definitely been like one of the keys to their success has been being able to essentially like roll up a fragmented industry that way um when you know when they were smaller it was i would say a little bit easier to to do in terms of like bite-sized acquisitions um i think a lot of people have been critical of their recent acquisition in florida um they're perhaps overpaying and and that so i think i think we're seeing some caution with larger acquisitions which is healthy i think that's good um i think traditionally um they've

paid like reasonable prices and because they've got the advantage of the scale like they've been able to pay a price you know that other people maybe just couldn't swallow because like they as soon as they do an acquisition they're going to have an advantage that they cannot improve margins and deal with inventory better you know deal with overhead costs a lot better than smaller players can do and they're just they're used to the industry so they're pretty good operators that way um what i would say is that like i think at this point like i'd be i'd like to see them kind of be more opportunistic with their acquisitions and not just thought money into acquisitions as much as maybe historically they've been able to get away with so that is maybe one thing i would

look to i know like their capital allocation strategy has been like a percentage of uh free cash flow devoted to that in terms of uh allocation and i i think i think they're reasonably cautious of not overpaying but uh it's something to guard against as we all kind of recognize like the the bigger uh the organization gets sometimes there's a lot of onus to to start chasing bigger and bigger deals and i think that's a often a recipe for disaster that's something to keep an eye on i think as they grow do they like rebrand these stores like to like pool corp store or whatever or is it like no they have different branding different areas uh that's more of a regional thing i believe and i don't know that they're like quick to worry about what

the branding is on the store like because it's not a retail uh operation they're not as worried about that i don't think um yeah i think it's more of a regional choice that way it makes sense the and did you mention this you may have mentioned this already and i must might have missed it but is there like just and i'm guessing the answer is yes do they get kind of discounts from suppliers because they have such a large store base that it makes it difficult that's one that's one yeah That's one aspect. The other aspect that they have with their suppliers that helps them is because of their reach, they can plan to look ahead to next season. It's a very seasonal business, as you can imagine. So if you're dealing with a supplier and you can tell them,

oh, by the way, next season, I'd like to put in an order now ahead of time, they're able to do that so they can get that stance for that reason because then the suppliers can plan their finances accordingly right their operations accordingly so um that's a really big advantage that they have over the smaller players as well as they can negotiate not just because of volume like that's one aspect but just the timing of the order um it makes the life of a supplier uh you know a lot easier to manage yeah i guess that would certainly make sense the the we we mentioned we kind of talked about it briefly before we hit record was like the the european opportunity and before i asked that question what do you what do you think still

like the opportunity in the u.s like are they getting anywhere near towards saturation or is there still like plenty of room to expand the top line yeah i think you know to be honest i think like a lot of the easy pickings are perhaps in the past so i think the answer to that is a kind of a soft maybe um i still think there's lots of room to grow like as much as they've rolled up quite a bit of the industry like their own they're really in a few states in terms of footprint like florida um texas now they're too big in some areas of texas like they're not even Even in those states, there's quite a bit of, for them, like white space to do. So they've been like still opening up new centers regionally.

So it's one of those things where perhaps like the industry in those good markets is a mature industry. But given the kind of the network effects that you think about, how valuable having closer access to certain contractors in certain areas might be, they could you know strategically be opening centers that they previously wouldn't have bothered to open because there's no return but now that they've got like you know a web of stores here here and here well if you open one in between like you don't need to open maybe a full center let's say but there might be an advantage that way that they can they can deploy capital there and open a new center that other like other networks just wouldn't be able to do that because they don't have the corresponding like nodes in that network so i i think as much

as like it's a mature industry in terms of like uh players i don't know that i don't know that that means that there's a lack of uh new stores to open like i think of like autozone as a corollary like they've been still opening new stores and taking american share and doing that for how long now right like they're very mature industry that way but they've been finding better and better ways to it might not just be like the number of stores it might just be how they size them uh where they where they open them things like that so yeah like regionally i think there's opportunity in the states um i think yeah that's a long-winded answer but i don't think it's necessarily as easy as it was in the past but there's still pretty pretty good room to grow in

in the u.s okay and uh i saw in your write-up that they're you know they have a small business uh in europe at least it might not be small in europe but it's small relative to their uh their own top line how do you think about that market uh just in general yeah i like i um i wouldn't speak too long about it but uh right now it's like a five percent uh part of their their revenue business is in europe and i know they've been ashamed to go there i think the timing was maybe not great like europe as a whole the economy hasn't been amazing compared to the western world that way so um yeah i would look at it more like uh like a call uh a free call item in the future um i don't know enough to speak to too much on it but i do know that like

they're they're currently the number two so they're not like a small fish in the pond or anything like that. I think Europe is more challenging just given like the jurisdictions, right? Like they're more segregated in different countries compared to the States that way. So just as a distributor in general, you're not going to see like the benefits that something that the U S looks like. In your write-up, you talked about a growth of, you know, maintenance and renovations. And I'm just wondering why that occurs and why it grows as a percentage of revenue? Is it because just the installed base steadily grows higher?

And you also talked about maybe the digitization, the modernization of some of these pools. Is that a big growth driver too? Yeah, I think there's probably two questions there. I'll try to answer the first one first, I think, if I can. And then if I don't answer the second one, maybe remind me. So the first question is like about what's causing that like growth and renovation, that line item is basically, that's what you're getting after, I think. I believe like if you look at the, so the number of installs, like the base of installs is growing over time.

and along with that the second component to that is like um similar but different in that like the age the average age is increasing so they imagine speaks to like they're they're they think the average age is over 20 years approaching 25 um which does make sense especially if you think about in a few years we'll be approaching like the kind of the uptick and new installs that happened during like 2006 or like the housing boom so there was a lot of new installs around that time so within like five years from now that average age is going to be between 25 and 30 or something like that so i think that's a big driver over the next uh say decade um where it's not just the number of pools that are installed anymore it's also about the mix so like a pool

that's 10 years old you may not do much too you might think that's you know that's a modern pool but when that's 25 years old you might start thinking you know this this really needs like to be modernized um and so maybe that feeds into your second question which is the question around like the modernization of like lighting and integration of technology and things like that in the pool so i i think you know i have lots of theories on that but i don't know that i don't have any special insights but it seems to me like pools is something that traditionally has been very like rudimentary you know it's been part of your backyard and it was a hole in the ground and treated the water and you circulated it these days like a pool is part of your instagram page

if you don't if you know what i'm saying so i i think uh i think for those pool owners especially of a certain age like they look at it more of a lifestyle item than it ever was in the past um and uh without sounding too cliche like i think one there's a lot of technology uh creep in our lives i mean look what we're doing now and uh and i think that happens everywhere and and the place where that happens the most on a relative basis is like stuff that is very simple so things like pools that were previously holes in the ground with water in them now become connected items with special lighting and things like that so it's as simple as um i think it's as simple as that um i think people are attached to those things a lot more now due to i don't

know i'm going to sound like an old man but like do it on social media and things like that like people have much more attachment so i think the value to the customer uh is kind of increasing as these things become more and more attached to technology and and things like that i know that's like a hippy dippy answer but i think that's that makes sense yeah yeah i think it makes sense i mean you got stuff like you know you can change the temperature from your phone or stuff like that and that that seems it's kind of like an easy thing modern and like uh connected house right like the google home stuff or whatever it is you use like it's similar that way yeah and that's more revenue for pool court and touching on simon's point i i no longer on instagram but i

think you're right they i thought i feel like pool posts are probably very common and it's kind of a part of your social image slash lifestyle i guess another question that i have is is there a digital component to this business like do they do they sell online um and i guess kind of on the flip side of that is there any risk that some big online retailer just steals share from them over time yeah so the first question about is there uh yes they do have like a some uh they do have some small part of the revenue that's been shifting towards like their online uh store essentially um i don't think that's like a huge well i know that's not a huge part of their business right now i think that was more of a reaction towards the last few years of

people kind of looking for that as an option so it was likely more of a hey we really need something to satisfy our customers right now for those maybe less willing to go face-to-face. I don't know if there's long-term, maybe there's some threats there. I would tend to think it's more of the AutoZone or O'Reilly Automotive, those types of businesses where you're not as likely to treat it like amazon if you will um i i don't see like contractors i think there's some there's i think there's some contractors that would say okay let me order all the kind of stuff i the consumables the the chemicals the stuff like that that i that i know i'm gonna order and but they probably have things set up that they can just call a store and

order it like that anyway so i don't know that that's any different um yeah i i think part of the because it's a niche thing like i don't know that like you're gonna have a lot of upstarts that come in and like try to displace um this kind of distribution network that way um some will probably try i'm sure but um i think traditionally that's been a challenge that i think amazon has not really you know uprooted you know the plumbing industry for instance or those types of things so it kind of seems more analogous to that than like uh than like a retailer uh that shelf i would support or amazon or whatever yeah i think it's probably fair to assume that if amazon hasn't disrupted them yet that it's probably kind of resilient to safe yeah yeah it's probably fairly

insulated um i guess let's talk about the return on invested capital it they have a really strong roic um why is it so strong and and why has it been able to trend higher over time yeah i think that's a good question um but i think it's it's pretty strong because they you know the the model that they have is not that capital intensive like um you know they do have a network of stores and whatnot, but like that, I don't know that there's like a ton of invested capital required to get the marginal dollar. Like as they grow, it gets easier and easier to squeeze out a marginal dollar in a lot of sense. And I think that's why you're probably seeing the ROIC numbers kind of trend slowly upwards over time. I think that would be, I think that's probably like the good sign you

would look for in any distributor business is like, if that's not happening, then do you really have that network effect of you know having a stronger two-sided uh customer uh you know supplier and and customer on the other side and if you don't see that in a distributor i'm not sure um probably something you want to consider and that's kind of the idea of distributors is that you should get better and better as it get bigger so um yeah i don't know if that answers the question like i think they don't need more and more capital so that's to get the marginal dollar out so i think that's maybe a reason like you look at their margins and everything else and they've been just trending up as well so um easier and easier to squeeze out some profits there i

think yeah yeah roic very important to track for a company like this as we wrap things up let's talk valuation we haven't mentioned it really yet how are you valuing valuing shares today what are you looking for over the next few years kind of the general valuation talk and i guess i don't know how are you looking at it for kind of maybe an earnings compression as we come out of the covet period stuff like that yeah for sure um like we like speaking too many numbers because that would take too long but like like i think they're trading you know if you look at them like on the sales multiple at kind of in the mid to higher end of their traditional range so knowing that you'll have a little bit of compression this year to me like they don't seem like cheap in the short

medium term and I wouldn't be surprised if the price came down in recognition of that. I think given that more people, myself included, have recognized the long-term value that they've created, you're not going to necessarily get a crash in the price either. The way I look at it is I think you'll see compression in the earnings because the benefit of some of the size will go down as the revenue goes down so that leverage will go the other way um over the short term so over the next year year and a half maybe even two years and then they should kind of keep going uh up into the right after that i expect like the the company is projecting like six to nine percent growth over the longer term uh which is conservative compared to their um past so

i think that's a not a crazy assumption to think but they can hit that um especially with the aging pool-based, install-based that we've talked about. Yeah, like valuation, it does seem a little bit rich here. I own a small amount, but I'm not necessarily, I wouldn't be adding here myself. I think if you can get the price down towards like the $300 range, I think it's a reasonable price to pay that I'd be comfortable assuming like a low double-digit return from there uh over the longer term like i think you know you talk about like the exposure to the housing market and things like that so um that could could go down in the short term um but in the long term there's a lot of secular like uh tailwinds pushing it in the right direction so

to me like i'm not so worried about a long term i think the short term the price is kind of not priced to perfection but it's priced more than fairly do you think it looks like margins have trended up over time do you expect that to continue as kind of the store base expands um marginally i i don't know that like you know there's only so much margin we can bring out of a business so this isn't like it's not visa right like you're not going to get ever increasing uh margin expansion that way uh and i think that you see this year you'll see the leverage working the other way with with the operating leverage in the company so um the answer i guess is no i'm not overly optimistic that forever the margins

will increase i think they'll probably start leveling off here at some point in the next few years and they're looking a lot more like a mature business that way right so what do you think of management team um i don't i don't think strongly either way of them i think they've been historically like pretty good uh allocators of capital and they've they've basically done what they've said and and they've told investors what they plan on doing so as long as they keep those two things um in line i i'm happy i don't think they need to be geniuses this is certainly not a um it's not it's not a complicated business like a lot of the uh interesting ones people like to talk about right so from that perspective just do what you say and i'm happy um that they're

not ripping off minority shareholders uh historically anyway like they've got a new ceo the last couple of years couple years so uh we'll make sure that um he kind of keeps up that that motto but um basically they've been been right by shareholders uh for the last 20 years so So as long as they keep doing what they're saying, they're going to do it. I'm pretty happy that way. Okay. Last question, unless Brett ends up having any more, but this is the pre-mortem. We try to ask this on all our deep dives.

How could this go wrong? What are the risks here? Why would PoolCorp be a bad investment from here? Yeah. From here, I think the price is pricing in a lot of kind of medium term after the next year or two. It's pricing a lot of expectations about continued growth from there. So I think from here, you've got to be sure that those levers that we talked about with the secular tailwinds will be there for you. And if they're not, then likely, best case, you're going to underperform a little bit.

I don't, the worst case, like you get a housing crash or something like that, which definitely could hurt the business. No, I don't think even that, like they survived 2008 reasonably well. So more of a short-term risk, I think even that. Okay. I think that's all the questions we have. Brett, you're giving me the nod to go ahead with the disclosure. So I guess before we sign off here, people that want to follow your work, read more of

But what's the best place to either keep up with you or keep up with your work? Yeah, for sure. They can follow me on Twitter at Moss underscore investing for marginal safety. And yeah, my sub stack rating is at marginal safety investing dot com. Awesome. Well, I'm going to throw a disclosure on this. Brett and I are not financial advisors. Anything we say or discuss here on Chit Chat Money is not formal advice or recommendation.

We are, however, general partners of Arch Capital, so clients may have positions in the securities discussed in this podcast. Thank you all for listening. Thank you, Simon, for coming on the show. We look forward to hopefully having you on again sometime, but that's going to do it. We'll see you all next time. Okay. I'm welcomed by the founder of our exclusive sponsor, Stratosphere.io, Brayden Dennis. Brayden, welcome. I wanted to basically give listeners that are interested

in Stratosphere, more context around what the platform is. So let's start there. What is Stratosphere and then why did you decide to start it? Yeah. Thanks for having me. I appreciate it. And I'm glad to be sponsoring the podcast as a listener myself. I like the deep dives. I like the different guests, the different perspectives on some interesting companies. So I think it's a good concept for a podcast, which is kind of what led me down to making Stratosphere in the first place, which was I was making content online and frustrated with the tools that were available to me. So I started building a very scrappy version of the product just for free, just to figure out how can I overlay 10 years of financial side-by-side up to 35 years we have now,

and how can I actually build out a proper database of company KPIs that are not just revenue but like if you're looking at like costco like how many warehouses do they have how many paid members are are in like our costco members or you know if i want to do a comp against like the streaming like how many netflix subs versus uh hbo plus discovery plus no disney plus like how do i build up proper comps of those because those are the metrics that actually move the business those are the ones that actually move the needle more than any like gap financial metric you'll find. And so it started off as just purely a passion project. And I figured let's just make the leap into entrepreneurship and see where it goes. And, you know, it brought, brought us here

today. Yeah. And like you mentioned, it is the stuff that you can't find anywhere else, at least not in a, I mean, you could find it page by page and on their financials, but you can go through 35 PDF filings and find it. Be my guest. And that's basically what we did for a long time. So what do, I guess, maybe describe the pricing model so people know, but you're going to say there's a free platform. What do free users get? Yeah. Good thing. Because our mission was to always build a free platform. And so we really kept true to our mission and give an amazing platform for free, which gives you 10 years of financial statements on 40,000 global securities. So we don't list you just to US securities. It's on global stocks. We give you a watch list,

the screener, comparisons on competitors, fundamental charting up to 10 years, filings, transcripts. You can look at the press releases right inside the app, news, ETFs, funds, super investors, hedge fund letters, investor holdings, and financial calendars. Those are all the features you'll get on the free tier. Now, on the middle tier, the personal tier, you're going to unlock up to 35 years of financials and just kind of like nice to have like quality of life, like notifications being built in, price targets for building models, like business owner mode where you can hide prices, like kind of like just that next level for individual investors who want to level up. And then the top tier is for like investment teams and

professionals who want to unlock that KPI data and request KPI coverage as well. Like a firm will be like, here, we want these 10 names in our coverage and in your coverage. And then you'll have basically our entire universe that we're looking at, which is great, right? Because like earning season comes around and we have it updated within 15 minutes when Netflix comes out with their net subscriber ads, it's right there in one place, especially easy to handle around the peak of earning season. That matters a lot for these people. And so we have a premium tier for that as well. That's the three plans that are available today. And now a perfect time to shameless plug our code. If you use CCM, you get 15% off any of the paid plans, but I think that covers it

pretty well. If you're interested, please go ahead and check out stratosphere.io. We'll have a link in the description as well, but thank you, Brayden, for joining us. Ryan, keep it up. I really like what you and Brett are doing and I'll be listening along.