LESL

Publicly traded companies mentioned herein: Home Depot Inc/The (HD), Leslie’s Inc (LESL), Pool Corp (POOL), Walmart Inc (WMT)

Highlights

The presenter is long shares of Leslie’s Inc (LESL, Oct 2020 IPO at $17), the largest provider of pool supplies in the US. LESL has been rolling up its competitors and will continue to do so, but there are no longer any other players who can compete in terms of scale (LESL’s physical network of 943 locations exceeds the sum of its 20 largest competitors). Therefore, residential pool owners looking for chlorine or pool supplies are likely going to buy from LESL or a big box retailer with generic options like WMT and HD. After nearly doubling from the 10/20 IPO, the stock has traded down to its current $26 share price as pre-IPO shareholders, private equity and insiders, have sold blocks of shares. While some investors view this as a negative signal, the presenter notes that these shareholders have been with the company for several years and have received a large portion of their compensation in equity over that timeframe. He therefore considers this dislocation an attractive entry point and highlights short-term tailwinds (new pool builds, pricing power, etc.) as well as dynamics that will drive long-term compounding (non-cyclical business, recurring revenue model, 57 consecutive years of sales growth). As the company outperforms its growth algorithm, he expects the stock to generate an IRR in the low-20% range through 2024.