Malibu Boats (MBUU)

Recreational boats manufacturer Malibu Boats (NASDAQ:MBUU) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 12.4% year on year to $228.7 million. Its non-GAAP profit of $0.72 per share was 2.4% below analysts’ consensus estimates.

Company Overview

Founded in California in 1982, Malibu Boats (NASDAQ:MBUU) is a manufacturer of high-performance sports boats and luxury watercrafts.

Leisure products cover a wide range of goods in the consumer discretionary sector. Maintaining a strong brand is key to success, and those who differentiate themselves will enjoy customer loyalty and pricing power while those who don’t may find themselves in precarious positions due to the non-essential nature of their offerings.

Competitors in the sports boats and luxury watercraft market include Brunswick (NYSE:BC), Marine Products Corporation (NYSE:MPX), and MasterCraft Boat Holdings (NASDAQ:MCFT).

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Malibu Boats struggled to consistently increase demand as its $759.2 million of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and suggests it’s a low quality business.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Malibu Boats’s recent performance shows its demand remained suppressed as its revenue has declined by 25.5% annually over the last two years.

This quarter, Malibu Boats reported year-on-year revenue growth of 12.4%, and its $228.7 million of revenue exceeded Wall Street’s estimates by 2.4%.

Looking ahead, sell-side analysts expect revenue to grow 16.5% over the next 12 months, an improvement versus the last two years. This projection is healthy and indicates its newer products and services will fuel better top-line performance.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Malibu Boats’s operating margin has risen over the last 12 months, but it still averaged negative 3.5% over the last two years. This is due to its large expense base and inefficient cost structure.

This quarter, Malibu Boats generated an operating profit margin of 7.6%, up 44.4 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Malibu Boats, its EPS declined by 28.1% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.

In Q1, Malibu Boats reported EPS at $0.72, up from $0.67 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street expects Malibu Boats’s full-year EPS of $0.73 to grow 306%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Malibu Boats has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.2%, lousy for a consumer discretionary business.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Malibu Boats historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 13.5%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Malibu Boats’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Companies with more cash than debt have lower bankruptcy risk.

Malibu Boats is a well-capitalized company with $38.71 million of cash and $28 million of debt on its balance sheet. This $10.71 million net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see Malibu Boats beat analysts’ revenue expectations this quarter. On the other hand, its EPS missed. Overall, this print was mixed. The market seemed to be hoping for more, and the stock traded down 4.4% to $28.36 immediately following the results.

Updated: May 22, 2025 at 10:57 PM EDT

When considering an investment in Malibu Boats, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We see the value of companies helping consumers, but in the case of Malibu Boats, we’re out. To kick things off, its revenue growth was weak over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its number of boats sold has disappointed. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Malibu Boats’s P/E ratio based on the next 12 months is 10.1x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $38.71 on the company (compared to the current share price of $30.03).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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