$0.30
$5.58
bear $0.30
base $3.21
bull $5.58
margin of safety $1.70
market price* $6.12
Latham is the largest designer, manufacturer and marketer of in-ground residential swimming pools in North America, Australia and New Zealand, with an operating history of more than 70 years. It sells in-ground swimming pools (with a strategic focus on fiberglass), pool liners and pool covers, including automatic safety covers, through dealers and distributors whose relationships with the company average more than 15 years. Demand has swung widely: net sales peaked at $695.7 million in 2022, fell to $508.5 million in 2024 and recovered to $545.9 million in 2025. Sales are concentrated: the largest customer took 22.6% of 2025 net sales and the top ten dealers and distributors 49.0%. How we measured earnings. We start from cash generated by operations, strip out swings in working capital, and charge stock-based compensation, lease payments and the capital spending needed to keep the plants running (spending tied to sales growth is treated as investment, not upkeep). Because the company carries debt, we then add back the cash interest it pays so that we value the business before its lenders and subtract what it owes separately. On that basis the business produced about $41 million in 2019, $43 million in 2020, about $24 million and $23 million in 2022 and 2023 (the two weakest years), $41 million in 2024 and $67 million in 2025. We left out 2021, when stock-based compensation of $128.8 million (versus $1.8 million the year before) swamped the result. The typical year across this full boom-and-bust cycle is about $46.6 million, or roughly $0.39 per share on today's share count, and that is our starting level. Amortization of intangible assets from past acquisitions (about $29 million in 2025) is added back as a non-cash charge; we did not treat it as a decaying asset because the brand and dealer relationships that underpin the business are maintained through marketing and sales spending that is already charged against cash flow. A $12.0 million deposit made in 2025 toward buying several fiberglass plants the company now leases was treated as a one-off property purchase rather than upkeep spending. What it owes. At June 27, 2026 the company had $284.0 million of term loan principal and $2.9 million of finance leases against $43.5 million of cash, or about $243 million net. The term loan matures on February 23, 2029 and carries interest at SOFR plus 3.75% to 4.00%, well above our 6% yardstick, so we add about $14 million for that extra cost through maturity, for roughly $257 million owed. The $75 million revolving credit line, undrawn at year-end 2025, matures on February 23, 2027. Base case. Cash generation holds at the typical-cycle level of about $46.6 million a year before interest. Business cash flow grew 64% in 2025 (and owner earnings after interest more than doubled), but we assume no growth from the starting level: the gains in fiberglass and automatic safety covers that management highlights are share gains, and management itself expects the U.S. in-ground pool market to be flat in 2026. We carry this level for 30 years on the strength of the company's 70-year record and leading market position, and nothing beyond. The business is worth about $642 million; after roughly $257 million owed, about $385 million is left for shareholders, or $3.21 per share. Interest of roughly $25 million a year is covered almost twice. Bear case. Cash generation stays near its 2022-2023 low of about $23 million a year before interest for two more years, roughly equal to the interest bill, and the concentration in a few large dealers, together with the interest the company reports from pool makers in Canada, Brazil, Mexico and Australia in entering the U.S. market, caps the recovery at about $35 million a year. We end the story after 15 years. Refinancing the 2029 term loan from that weaker position costs more, which we charge at about $25 million. The business is worth about $318 million against roughly $282 million owed, leaving about $36 million, or $0.30 per share. In this case the shareholders' claim is thin because the debt absorbs nearly all of the value. Bull case. The 2025 level of about $67 million a year before interest, which included a full year of Coverstar Central (Latham's former exclusive automatic safety cover dealer in 29 states, acquired in August 2024 for $71.5 million), proves to be the new normal and holds for 30 years. First-half 2026 results are consistent with this: net sales rose to $314.8 million from $284.1 million a year earlier, and operating cash flow improved to $5.8 million from negative $10.9 million. The business is worth about $925 million; after roughly $257 million owed, about $668 million remains, or $5.58 per share. We gave no credit for further share gains or for any recovery in new pool construction, since neither can be pointed to as secured. What could make this wrong. Losing or shrinking the largest customer would put more than a fifth of sales at risk. A long slump in new pool construction would keep cash near the bear level while the term loan approaches its 2029 maturity. On the other side, if the 2025 cash level repeats for another year or two, the typical level we start from would rise toward the bull case.