We came across a bullish thesis on Malibu Boats, Inc. (NASDAQ:MBUU) on Substack by Fundamental Goob. In this article, we will summarize the bulls’ thesis on MBUU. Malibu Boats, Inc. (NASDAQ:MBUU)’s share was trading at $37.43 as of Dec 20th. MBUU’s trailing and forward P/E were 7.34 and 15.43 respectively according to Yahoo Finance.
A colorful fleet of recreational fiberglass powerboats in full sail.
Malibu Boats, Inc. (NASDAQ:MBUU) is a leading player in the wakeboat market, with its core “Malibu” segment accounting for nearly half of its sales. As the dominant brand in the U.S. wakeboat market, Malibu benefits from a capital-light business model and a strong dealer network, with over 50% of its dealers having long-term partnerships. However, recent negative developments, including the resignation of key executives, legal issues with a major dealer, and a sharp decline in unit volumes, led to a significant drop in the stock price. Despite these challenges, there are strong reasons to believe that the downturn is temporary, and the company’s robust balance sheet and stock buyback program provide a foundation for recovery.
Historically, the wakeboat market has been cyclical, and MBUU appears to be at a cyclical low. The market experienced a steep decline in unit sales from 2006 to 2010, and while the current downturn is severe, it’s likely to be shorter and more V-shaped, given the stronger macroeconomic outlook compared to the last cycle. Sales peaked at 14,000 units in 2021, and industry sales are expected to fall to 4,500 units in 2024. However, this steep decline has already surpassed the post-GFC downturn, making a recovery more likely as the economic environment stabilizes.
The wakeboat niche is an oligopoly, with Malibu holding a significant share of the market alongside MasterCraft and Nautique. This market structure creates barriers to entry, ensuring that Malibu remains the dominant player. Moreover, the service element provided by authorized dealers adds another layer of protection from competition. Despite concerns about affordability and declining wakeboard participation, these risks are mitigated by Malibu’s focus on affluent consumers and the growing popularity of wake-surfing, a related sport that has gained traction in recent years.
Given the market’s current pessimism, MBUU’s stock is undervalued, with a potential upside of around 50%. A conservative recovery forecast suggests that the stock could reach $64 per share by FY30, offering a compelling 16% annualized return over the next five years. With catalysts such as lower financing costs for dealers and the return of the boat replacement cycle, MBUU presents an attractive investment opportunity for those willing to look past the current cycle’s challenges.
Malibu Boats, Inc. (NASDAQ:MBUU) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 11 hedge fund portfolios held MBUU at the end of the third quarter which was 12 in the previous quarter. While we acknowledge the risk and potential of MBUU as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MBUU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.