Shares of swimming-pool retail chain Leslie's (LESL -1.04%) skyrocketed on Thursday after the company reported financial results for its fiscal second quarter, and after management said that it's on track to meet its full-year goals. As of 1:30 p.m. ET today, Leslie's stock was up 17%.
What's so good about this quarter anyway?
Without context, most investors wouldn't expect Leslie's stock to be up today. Sales of $189 million were down 11% year over year, and it had a net loss of almost $35 million -- hardly the kind of numbers one would expect to make shares rise.
However, the pool business has a definite season, and Leslie's makes most of its money in the back half of its fiscal year. So investors are accustomed to focusing on guidance and the company's positioning.
And management's guidance hasn't changed: It expects sales over $1.4 billion for the year and full-year net income of $32 million to $46 million. Those aren't bad numbers from a company that's valued at only $1 billion as of this writing.
Is this a bargain buy?
It's tempting to view Leslie's as a deep value stock. However, investors looking for a bargain need to keep a couple of things in mind. First, the company's balance sheet isn't the greatest, with only $8 million in cash and nearly $900 million in debt. Second, with over 1,000 stores already, Leslie's isn't opening many new locations because it's already large for a pool company.
In short, investors shouldn't expect much growth, which is an important driver for stock returns. Moreover, investors shouldn't expect to see much of the company's profits because of its debt obligations.
It could still wind up being a good investment over the long term if the business is well managed. But value investors need to be aware of these things before making a decision of Leslie's stock.
