MasterCraft (MCFT)

Sport boat manufacturer MasterCraft (NASDAQ:MCFT) reported Q1 CY2025 results exceeding the market’s revenue expectations, but sales fell by 9.5% year on year to $75.96 million. On the other hand, the company’s full-year revenue guidance of $275 million at the midpoint came in 3.7% below analysts’ estimates. Its non-GAAP profit of $0.30 per share was 70.5% 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 put up a good quarter or two, but many enduring ones grow for years. MasterCraft struggled to consistently generate demand over the last five years as its sales dropped at a 9% annual rate. This wasn’t a great result and suggests it’s a lower quality business.

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 37.4% annually over the last two years.

MasterCraft also discloses its number of boats sold, which reached 619 in the latest quarter. Over the last two years, MasterCraft’s boats sold averaged 40.6% year-on-year declines. Because this number is lower than its revenue growth during the same period, we can see the company’s monetization has risen.

This quarter, MasterCraft’s revenue fell by 9.5% year on year to $75.96 million but beat Wall Street’s estimates by 1.4%.

Looking ahead, sell-side analysts expect revenue to grow 13% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and indicates its newer products and services will spur better top-line performance.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

MasterCraft’s operating margin has shrunk over the last 12 months and averaged 7.2% 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.

In Q1, MasterCraft generated an operating margin profit margin of 5.4%, down 2.6 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

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 declined by 26.7% annually over the last five years, more than its revenue. We can see the difference stemmed from higher interest expenses or taxes as the company actually grew its operating margin and repurchased its shares during this time.

In Q1, MasterCraft reported EPS at $0.30, down from $0.37 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects MasterCraft’s full-year EPS of $0.48 to grow 165%.

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.

MasterCraft has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8%, subpar for a consumer discretionary business.

MasterCraft’s free cash flow clocked in at $10.06 million in Q1, equivalent to a 13.2% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

Over the next year, analysts predict MasterCraft’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 10.2% for the last 12 months will decrease to 8.5%.

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 32.6%, 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. Unfortunately, MasterCraft’s ROIC has decreased significantly over the last few years. 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 well-capitalized company with $66.52 million of cash and $2.26 million of debt on its balance sheet. This $64.26 million net cash position is 22.7% 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.

We were impressed by how significantly MasterCraft blew past 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 number of boats sold missed and its full-year revenue guidance fell short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock remained flat at $17.01 immediately following the results.

Updated: June 14, 2025 at 10:58 PM EDT

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.

MasterCraft isn’t a terrible business, but it doesn’t pass our bar. For starters, its revenue has declined over the last five years. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its number of boats sold has disappointed. On top of that, its Forecasted free cash flow margin suggests the company will ramp up its investments next year.

MasterCraft’s P/E ratio based on the next 12 months is 14.2x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $18.75 on the company (compared to the current share price of $17.97).