MasterCraft (MCFT)

Sport boat manufacturer MasterCraft (NASDAQ:MCFT) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 5.6% year on year to $69 million. On top of that, next quarter’s revenue guidance ($69 million at the midpoint) was surprisingly good and 3.3% above what analysts were expecting. Its non-GAAP profit of $0.28 per share was 77.2% above analysts’ consensus estimates.

Company Overview

Started by a waterskiing instructor, MasterCraft (NASDAQ:MCFT) specializes in designing, manufacturing, and selling sport boats.

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 recreational watercraft industry include Brunswick (NYSE:BC), Malibu Boats (NASDAQ:MBUU), and Marine Products (NYSE:MPX).

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. MasterCraft struggled to consistently generate demand over the last five years as its sales dropped at a 4.2% annual rate. This wasn’t a great result and is a sign of lacking business quality.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. MasterCraft’s recent performance shows its demand remained suppressed as its revenue has declined by 30% annually over the last two years.

MasterCraft also discloses its number of boats sold, which reached 565 in the latest quarter. Over the last two years, MasterCraft’s boats sold averaged 30.3% year-on-year declines. Because this number aligns with its revenue growth during the same period, we can see the company’s monetization was fairly consistent.

This quarter, MasterCraft reported year-on-year revenue growth of 5.6%, and its $69 million of revenue exceeded Wall Street’s estimates by 3%. Company management is currently guiding for a 8.9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 6.8% over the next 12 months. Although this projection implies its newer products and services will spur better top-line performance, it is still below the sector average.

MasterCraft’s operating margin has been trending down over the last 12 months and averaged 5.5% over the last two years. The company’s profitability was mediocre for a consumer discretionary business and shows it couldn’t pass its higher operating expenses onto its customers.

This quarter, MasterCraft generated an operating margin profit margin of 5.5%, up 3.9 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for MasterCraft, its EPS and revenue declined by 4.6% and 4.2% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. Consumer Discretionary companies are particularly exposed to this, and if the tide turns unexpectedly, MasterCraft’s low margin of safety could leave its stock price susceptible to large downswings.

In Q3, MasterCraft reported adjusted EPS of $0.28, up from $0.12 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects MasterCraft’s full-year EPS of $1.08 to grow 19.3%.

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.

MasterCraft has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.8% over the last two years, slightly better than the broader consumer discretionary sector.

MasterCraft burned through $10.13 million of cash in Q3, equivalent to a negative 14.7% margin. The company’s cash burn was similar to its $769,667 of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

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).

Although MasterCraft hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 33.7%, splendid for a consumer discretionary business.

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. Over the last few years, MasterCraft’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

MasterCraft is a profitable, well-capitalized company with $67.33 million of cash and no debt. This position is 19.2% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see MasterCraft beat analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its EBITDA guidance for next quarter missed. Overall, we think this was still a solid quarter with some key areas of upside. The stock traded up 2.5% to $22.01 immediately after reporting.

Updated: December 3, 2025 at 10:13 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in MasterCraft.

We see the value of companies helping consumers, but in the case of MasterCraft, we’re out. To begin with, its revenue has declined over the last five years. On top of that, MasterCraft’s number of boats sold has disappointed, and its declining EPS over the last five years makes it a less attractive asset to the public markets.

MasterCraft’s P/E ratio based on the next 12 months is 14.4x. While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $23.25 on the company (compared to the current share price of $18.42).

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.