Latham (SWIM)

Residential swimming pool manufacturer Latham (NASDAQ:SWIM) fell short of the markets revenue expectations in Q3 CY2025, but sales rose 7.6% year on year to $161.9 million. Its GAAP profit of $0.07 per share was 29.7% below analysts’ consensus estimates.

Company Overview

Started as a family business, Latham (NASDAQ:SWIM) is a global designer and manufacturer of in-ground residential swimming pools and related products.

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 outdoor recreation and water leisure industry include Brunswick (NYSE:BC), MasterCraft Boat (NASDAQ:MCFT), and Malibu Boats (NASDAQ:MBUU).

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Latham’s 8.9% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the consumer discretionary sector and is a rough starting point for our analysis.

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. Latham’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 4.4% annually.

This quarter, Latham’s revenue grew by 7.6% year on year to $161.9 million, missing Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.5% over the next 12 months. While this projection implies its newer products and services will fuel better top-line performance, it is still below the sector average.

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.

Latham’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 4.8% over the last two years. This profitability was lousy for a consumer discretionary business and caused by its suboptimal cost structure.

This quarter, Latham generated an operating margin profit margin of 13.3%, up 4.4 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 Latham, its EPS declined by 6.5% annually over the last five years while its revenue grew by 8.9%. This tells us the company became less profitable on a per-share basis as it expanded.

In Q3, Latham reported EPS of $0.07, up from $0.05 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Latham’s full-year EPS of negative $0.10 will flip to positive $0.10.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Latham 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 8.5%, subpar for a consumer discretionary business.

Latham’s free cash flow clocked in at $45.21 million in Q3, equivalent to a 27.9% margin. This result was good as its margin was 5.9 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends trump fluctuations.

Over the next year, analysts predict Latham’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 4.5% for the last 12 months will decrease to 3.8%.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Latham’s five-year average ROIC was negative 1.3%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer discretionary sector.

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, Latham’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.

Latham reported $70.52 million of cash and $311.5 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $92.98 million of EBITDA over the last 12 months, we view Latham’s 2.6× net-debt-to-EBITDA ratio as safe. We also see its $12.14 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Latham beat analysts’ EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance exceeded Wall Street’s estimates. On the other hand, its EPS missed and its revenue fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $7.20 immediately following the results.

Updated: December 4, 2025 at 9:04 PM EST

Before making an investment decision, investors should account for Latham’s business fundamentals and valuation in addition to what happened in the latest quarter.

We see the value of companies helping consumers, but in the case of Latham, we’re out. To begin with, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its Forecasted free cash flow margin suggests the company will ramp up its investments next year. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Latham’s P/E ratio based on the next 12 months is 42.3x. This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $7.79 on the company (compared to the current share price of $7.15).