Over the last six months, Malibu Boats’s shares have sunk to $32.95, producing a disappointing 6.8% loss - a stark contrast to the S&P 500’s 8.2% gain. This might have investors contemplating their next move.

Is now the time to buy Malibu Boats, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Malibu Boats Will Underperform?

Even though the stock has become cheaper, we don't have much confidence in Malibu Boats. Here are three reasons there are better opportunities than MBUU and a stock we'd rather own.

1. Decline in Boats Sold Points to Weak Demand

Revenue growth can be broken down into changes in price and volume (for companies like Malibu Boats, our preferred volume metric is boats sold). While both are important, the latter is the most critical to analyze because prices have a ceiling.

Malibu Boats’s boats sold came in at 1,129 in the latest quarter, and over the last two years, averaged 20.7% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Malibu Boats might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability.

2. Mediocre Free Cash Flow Margin Limits Reinvestment Potential

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Malibu Boats has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 6.2%, lousy for a consumer discretionary business.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Malibu Boats’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of Malibu Boats, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 24.5× forward P/E (or $32.95 per share). This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now. Let us point you toward a top digital advertising platform riding the creator economy.

Stocks We Like More Than Malibu Boats

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