14 BARRON’SJuly12, 2021

B

uyingaboatthissummer

has been futile for many

shoppers. Dealers have

been sold out for months.

“Every dealerIknowis

out of inventory,”says

Matt Borisch,owner of

Tommy’s,alarge powerboatdealer-

shipbased in Grand Rapids,Mich.

Likecars, computerchips, and

chickenwings, the boating industryis

going throughadisruption.Families

flockedtothe waters asvacationget-

awaysdriedup in the pandemic.

Powerboatsalessoared 21%lastyear

to $19.5billion, the highestlevel since

2008 .Registrations of newboats are

running 38% aheadoflastyear’space,

according to industry-researchfirm

Statistical Surveys.

Thewavemay nowbecresting,as

vaccinated consumersstart spending

their recreationdollars on trips to

Europe and Disneyland.Butone of

the largest powerboatmanufacturers,

Malibu Boats (ticker: MBUU), isstill

looking healthy, with ordersgoing

strongwell into 2022.

“Peoplestarted sayingafew

monthsagothatdemandwoulddecel-

erate,but we haven’tseenit,” says

Malibu CEOJack Springer.The com-

panyhas presold more than 80%of

the boatsit plans to manufacture

throughJune 2022,well aboveits 50%

rate in normal times, he says.“We

haven’tseen an order book likethisin

ourhistory,”Springeradds. Based on

currenttrends, hedoesn’t seeinvento-

ries normalizing until 2024.

Themarketseemsskeptical that

thegood times will last, assigning

Malibu’s stockalow valuation.But

even if sales cool off,Malibushould

sustain growth, bolsteredby market-

leading brands, lean manufacturing,

and innovative technol ogies fueling

demand foritsproducts.

“They sell into the mostattractive

markets in the industry,”saysRayna

Lesser Hannaway, managerofthe

PolenU.S.SMIDCompanyGrowth

fund (PBMIX),whichowns thestock.

“It’ sawell-run business, and they have

thestrongestbrands in sports boats.”

Based inLoudon,Tenn., the com-

panyhas rampedup production and

acquisitions in recentyears. Thefirm

bought themanufacturer Cobalt Boats

in 2017, addedPursuit Boats in 2018,

and made adeal forMaverickBoat

GroupinJanuary, paying $150 mil-

lion.Malibu nowbuilds75 models,

premium-priced from $89,000to

$243,000.Production is expected to

hit10,000 boatsover the nextyear.

Thecompanyrecentlyexpandedits

Cobalt plants and aims to lift outputat

Maverickby30%as it targetsthe salt-

water fishing market.

Theplaybookisworkingwell, says

BerenberganalystRudy Ya ng,who

sees thestockhitting $100,upfrom

recentprices around$70. Thecom-

panysuccessfullyintegrated Cobalt

and Pursuit, he says,squeezing out

costs and boosting margins.He ex-

pects similarsynergies withMaverick

onceit’s integrated, fueling top-

and bottom-line growth.

Malibugenerates industry-leading

margins, compared with rivals Mas-

tercraft Boat Holdi ngs (MCFT) and

Brunswick (BC), partlybecauseit’s

moreverticallyintegrated.Thecom-

panybuysengine blocks from General

Motors andVolvoand then“marin-

izes” them for boating,eliminating a

manufacturing middleman.Malibu

also custom-buildsitsownboattowers,

or frame-coverings,developing power-

foldingversi onsfor tight spots in mari-

nas or under bridges, along withits

owntrail ers, racks, andflooring.“If it

canbemadeof metal,we’remanufac-

turingit,” says Springer.

Malibu is also known for high-tech

features, including rear-facing cam-

eras, large cockpitscreens, andluxury

interiors. Andit has takenaleading

role indeveloping boats forwake-

surfing,afast-growingwatersport.

Malibu-brand boats,itsbiggest sell-

ers, are prized forwake surfing.The

companylaunchedaproprietarysurf

gate in 2012 thatcustomizes the boat’s

wake for the rider.“Wake surfingwas

hard todo before,and this made it

easier,” says Springer. Other manufac-

Malibu Boats:

Powering Past

ThePandemic

Boat sales maybecresting, but the powerboat maker

lookscheap and has the strengths tosustain growth

MalibuBoats

Sportboat Manufacturer

Headquarters:Loudon, TN

Recent Price:$68.

YTDChange:10%

2022 ESales(bil ):$1.

2022 ENet Income

(mil):$

2022 EEPS:$6.

2022 EP/E:9.

Market Value (bil ):$1.

DividendYield:None

E=Estimate.

MBUU/Nasdaq

Fiscal year ending June 2022. Source:FactSet

’20’ 21

20

40

60

$

HighTide

Powerboat

sales soared

21%lastyear

to $19.5 billion,

the highest

since 2008.

80%

The percentage

of boatsthat

Malibu has

presold through

June 2022,above

its50%rate in

normaltimes

By DARENFONDA

SIZING UP SMALL-CAPS

Mailbu’sboats costfrom

$89,000to $243,000.

turers nowoffersimilarfeatures, but

Malibu hasvaulted to thetop spot in

ski/wake boats witha32% market

share,accordingto Statistical Surveys.

DespiteMalibu’s strengths, the

stocklooksundervalued. Shares trade

at 10 times estimated earningsfor

fiscal 2022, ending nextJune,below

their five-yearaverage price/earnings

ratio of 12 times forward earnings.

Wall Street analysts see earningsbe-

fore interest, taxes,depreciation, and

amortization, or Ebitda, rising 20%in

fiscal 2022. Based on enterprisevalue

to Ebitda, thestocktradesatabout

seventimes 2022 estimates.

Skepticism on thestockreflects

concerns thatthe boating boom will

soon bust:Theindustry’ssales tend

to dryupineconomicdownturns and

takeyears to recover. Sport-boatsales

collapsedby 63%from 2006 to 2010.

Even inahealthymarketin2018, re-

tail saleswere 20%lowerthan their

peak in 2006.“Most boating compa-

nies haven’tdoneagreatjob of sus-

taining growth,” says Hannaway.

“There’s fear thatthe business isn’t

repeatable and therush to buyboats

in the pandemic willabate.”

Butthe marketmay be treating

Malibustocktoo harshly. “The com-

panyisbeingvalued as ifitsbusiness

is more cyclical than currenttrends

wouldsuggest,”shesays. Revenue

should increaseat a“lowteens” rate

overthe next five years,sheestimates,

ledby higher production, margin im-

provements, and some price increases.

B. Riley Securities analystEric

Wold also expectsdemand to persist,

partlybecause manyfirst-time buyers

started boating in the pandemic,fuel-

inganew replacementcycle.“It will

takeyears to rebuild inventorieseven

to prepandemic levels ofdemand,” he

says,seeing thestockat$103ayear

fromnow. Even at thatprice, he notes,

it would trade in linewithitsaverage

historicalmultiple.

Consensus estimates call forMalibu

to generate Ebitda of$222 million in

fiscal 2022, rising to$243 million in

2023.Those gains are expected to lift

earningsper share18%overthe next

year to $6.85.At amulti pleof12times

estimated 2023 profits of$7.46, the

stockwouldtrade around$90. That

lookslikeafair price foraboatmaker

thatmay be surfingalongwaveof

demand.B Ro

drigo Donoso/courtes

yo

fM

alibuB

oa

ts

July 12, 2021 BARRON’S 19

MEME

GENERATION

THEMARKET’S

Ahalf-yearlater,

ayouthfulretailday-

tradingboomisshowing

signsthatithasstaying

power. Whatinvestors

needtoknow.

By

AviSalzman

Illustrationby

PeterGreenwood

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