Are Boating Stocks Worth Investing In?
To say that I’m always on the lookout for new investing ideas, is something of an understatement. It’s a constant process of discovery, education, and investigation. Every time I pick up a new product in the store, or encounter a new service online, I’m always checking to see if it’s a public company. It’s practically a habit these days to check and see if it’s public.
When they are public, I dig-in and read as much as I can about that company. I’ve made it my mission to own the highest quality assets in my portfolio, and there are a great many businesses in this world that get overlooked, simply because they’re NOT tech companies.
The problem is, the quality of these (potential) new investments rarely beats what I already own. There are a lot of good companies in the world, but the bar is very high to get into my portfolio. Most don’t make the cut (as you’ll soon see).
Inspiration On The Water
Inspiration, of course, can hit in the strangest of places. Sometimes it’s in the shower, on the toilet, or even walking down the street with my kids. Inspiration is very random.
My latest investing idea happened a week ago on a boating trip, during a friend’s birthday get-together. This friend rented a fancy boat for the day, to celebrate and have a little fun on the water.
Yes, this friend happens to be pretty wealthy (wealthier than me), and this person is certainly not afraid to spend money. I think he spent well over $1,000 renting this boat for a few hours. I was simply along for the ride, and it was a fun ride.
We were zipping around Lake Washington at 40 mph, looking at the hundreds of beautiful lake-side mansions, when inspiration hit me like a wayward seagull…
Almost every home along the lake had a boat dock. Which makes perfect sense in hindsight — If you’re rich and going to own a lake-side mansion, you might as well own a boat too!
Let’s not beat around the bush here — Boats are large, expensive, and completely unnecessary for survival (unlike food or shelter). Boats also don’t play a part in how most people earn their income (unlike, say, a car), with the exception of commercial fishing boats, ferries, and container ships.
In other words, recreational boats are a luxury good.
While some people might want to own a boat, I’m more interested in boating as a investment idea. Not only are boats a big-ticket item, but maintenance, repair and storage of these watercraft is also a big business itself.
Put simply, boating is a form of recreation that skews very wealthy.
The Power Of Luxury
My little adventure on the water got me wondering, “Are there any good boating stocks worth buying?” Luxury consumers tend to be a little more “loose” with their dollars, and luxury products tend to make very good businesses — one look at LVMH and you’ll quickly realize just how fantastic those luxury businesses can be.
While luxury businesses are cyclical along with the rest of the economy, profit margins during good years tend to more than make-up for a few lackluster years.
So, are there public boating stocks?
Indeed I found a few, but most are small to mid cap stocks! These are very small stocks compared to the trillion-dollar stocks most people are used to buying. Volatility is an understatement.
During my research I also discovered that most boating companies tend to be private businesses, not public. This severely limits the number of investing opportunities in this sector.
Here’s a few I found that are publicly traded:
1. Brunswick Corporation (Symbol: BC) is a major manufacturer of boat engines, boat parts, fiberglass boats, typically under the brand names of Mercury, Sea Ray, Bayliner, Boston Whaler, Crestliner, Cypress Cay, Harris, Lowe, Lund, and Princecraft. Brunswick Corp. is one of the oldest and largest boating stocks that is publicly traded. It was founded in 1845. http://www.brunswick.com/
2. MarineMax Inc. (Symbol: HZO) is a seller of new and used recreational boats and yachts. Yep, when it comes time to finally sell your used boat, MarineMax can help you sell it. It also offers financing and insurance for these boats, as well as marine parts, electronics, water sports equipment, as well as operating marinas in the United States which offer maintenance, repair, slip and storage accommodation services, and brokerage services. http://www.marinemax.com/
3. Malibu Boats (Symbol: MBUU) is a maker of recreational power boats which are sold under the brands Malibu, Axis, Pursuit, Maverick, Cobia, Pathfinder, Hewes, and Cobalt. The company sells its products through independent dealers in North America, Europe, Asia, the Middle East, South America, South Africa, and Australia/New Zealand. Retail prices for Malibu’s boat models range from $60,000 to $800,000. http://www.malibuboats.com/
4. Mastercraft Boat Holdings (Symbol: MCFT) is a maker of recreational power boats which are sold under the brands MasterCraft, NauticStar, Crest, and Aviara brands. The company sells its products through independent dealers in North America and internationally. http://www.mastercraft.com
5. Marine Products Corp. (Symbol: MPX) is a maker of recreational fiberglass powerboats, sold under the brand names of Chaparral, Vortex, and Robalo brand names. The company sells its products through a network of 147 domestic and 46 international independent authorized dealers. http://marineproductscorp.com.
6. BRP Inc. (Symbol: DOOO) is formerly known as J.A. Bombardier. This company manufactures personal watercraft, all-terrain vehicles, snow mobiles, and Rotax engines. It’s by far the most diverse stock on this list (and also the only Canadian company). Boats manufactured by BRP Inc. are sold under the brand names Sea-Doo, Alumacraft, Manitou, and Telwater. http://www.brp.com/
Are Boating Stocks Worth Buying?
So, are any of these boat stocks worth buying? That’s a complex question! To make things simpler, I created a comparison table of some key metrics to consider:
As a class, none of these stocks appear expensive on a P/E basis. This is most likely due to the incredible surge in recreational spending the world experienced in 2021.
Consumers, flush with government stimulus money, spent a TON of money on boats in 2021. This boosted earnings at all 6 boating stocks listed here (and pushed down their P/E ratio). This makes all the stocks look surprisingly cheap.
But will this shift of consumer spending on outdoor recreation continue beyond 2021? Or, will it normalize back to the levels we saw before the pandemic (2019)?
It’s hard to say! I can’t predict the future, but I would guess there’s at least a good possibility for it to continue. New COVID-19 variants will continue causing lockdowns in cities across the world, driving this alternative spending on outdoor recreational activities.
My biggest issue with these boating stocks isn’t the valuations however — it’s the low gross profit margins. These are not the gross margins I would expect to see from a luxury product. For example, LVMH sports gross margins of around 60%+. Apple has gross margins of 40%. See what I mean? Luxury brands can charge big money for their products, and people will still buy it. Those are companies with real pricing power.
Alas, boating stocks all sport gross margins in the 20%-26% range, which indicates they lack pricing power and the ability to charge more for their product than competitors. This is a big red-flag for me, indicating there’s too much competition in the boating space to merit any kind of real investment.
That said, some of these boating stocks appear to be better than others.
Is There A Clear Winner?
Unfortunately, I don’t see a clear winner here. If you twisted my tentacles and forced me to pick a winner from this group of stocks, I would pick Malibu Boats (MBUU). For some reason, the company is growing considerably faster than the rest of the stocks in this group.
If I invested in Malibu Boats, I would definitely try to understand why MBUU is growing so much faster than it’s competitors. Is it luck, the right product, strategy, or something the company is doing to increase sales rapidly?
I confess, I’ve read through several of Malibu’s annual reports and can’t find a proper explanation. More research is needed.
If the growth continues, it could potentially reward long-term MBUU shareholders.
Indeed this seems to be the case when I look at the long-term stock performance of this entire group of stocks:
As you can see, only three stocks in the group showed any kind of outperformance of the S&P500 — MBUU, DOOO, and HZO. This outperformance is most likely due to their strong sales growth in recent years.
The laggard of the group, MCFT, sports the lowest PE ratio of the bunch, which is most likely deserved due to uneven financial performance and poor free cash flow growth.
Clearly my latest investing idea here wasn’t an amazing one. I was hoping to find a hidden gem — an “Apple” of the boating world. Unfortunately, I didn’t find a stock I wanted to invest in (although Malibu Boats definitely shows some potential).
That’s OK though. It’s all part of the investing process. Not every stock idea is going to be a home-run. Diamonds in the rough don’t just pop-out every time you go hunting for one. There’s tons of studying and research that goes on, and a ton of rocks get turned over.
Usually you just find worms.
The important thing is to keep learning, and enjoy the investigation process. You never know when you’ll discover a new investing idea!
Thanks for reading!
[Image Credits: Flickr1, Flickr2, Flickr3, Manitouportal, robalo.com, wikipedia, yahoo finance]
12 thoughts on “Are Boating Stocks Worth Investing In?”
Which brokerage do you use Mr. Tako? I have a Meryll Lynch account that’s been dormant for many years, but I don’t mind getting into Robin Hood to stay with the times. Just curious what you use.
I’ve used a number of them over the years. We currently use Scwab and Fidelity for most things.
So I own a boat, longtime readers probably think I’m Mr. ultra-frugal and would never own such a thing, but I do. It’s an 11-foot kayak. I paid $450 for it in 2002 and it’s still going strong, no maintenance needed. The best kind of boat to own 🙂
Haha! Good one! 🙂
That must have been a fun trip around Lake Washington! 🙂
My big concern with luxuries like this as an investment would be that they’re inherently that… a luxury. So in good times like the “roaring 20’s” we seem to have now, that’s probably a great investment. But when the fit hits the shan, so to speak, I would imagine those companies would struggle. I would think that unnecessary items like boats would be the first to go from people’s spending.
But I guess you never know. Maybe since the times are usually harder on the middle class, the wealthy keep spending on those items.
Jim @ Route to Retire recently posted…Health Insurance in the U.S. – How We’ll Keep Costs Low
Most businesses follow the economic cycle, that’s perfectly normal behavior. The beauty is that the high margins on luxury goods more than make up for the slow downs during the bad times.
Must have been a fun trip!
Interesting analysis. I’d be curious how often people buy new boats and how long used boats exchange hands. When the economy is going well, I can see people spending a lot of money on luxury goods like boats. But when the economy tanks, I can’t imagine people would be spending that much on luxury goods.
But we don’t own a boat, so what we do know. 🙂
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It certainly is a cyclical industry, but then what industry isn’t? There are very few that don’t see downturns when the economy goes bad. Alcohol and cigarettes might be the only ones I can think of that are counter-cyclical.
Don’t fool yourself into thinking you’ll own stocks that “always go up”!
What do you think about investing in boating / marine related to defense? HII (Huntington Ingalls Industries) is a good play in this space and pays a growing dividend. It’s outside the luxury brand thesis though.
Oh, that’s true! I had forgotten about Defense related marine spending. If memory serves, that’s a good (stead and profitable) business, but it doesn’t grow a lot, and it’s difficult to compound beyond share buybacks.
I love the mental framework of constantly thinking about: ‘how can I take what I’m observing in my everyday life / vacation and translate that into investment research?’
Seems like a great way to come up with investment ideas because it’s like ‘scratching your own itch’ where you’re looking for companies that are satisfying your needs to see if they can beat the market.
In your case, you didn’t find something that was very clearly outperforming but it’s like you said, investing is kissing a lot of frogs in order to find a gem.
Very interesting Mr Tako!
I agree that no investment in this list is good enough for me either.
You mentioned that not a lot of stocks are making it to your portfolio, so I would be very interested in let’s say your top 5-10 stock investments currently (I presume they would all be in your portfolio) ?