Although Malibu Boats (currently trading at $32.20 per share) has gained 15.3% over the last six months, it has trailed the S&P 500’s 27.3% return during that period. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is there a buying opportunity in Malibu Boats, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.

Why Do We Think Malibu Boats Will Underperform?

We're cautious about Malibu Boats. Here are three reasons you should be careful with 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 1,221 in the latest quarter, and over the last two years, averaged 25% 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. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Malibu Boats, its EPS declined by 14.2% annually over the last five years while its revenue grew by 4.3%. This tells us the company became less profitable on a per-share basis as it expanded.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative 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

Malibu Boats falls short of our quality standards. With its shares trailing the market in recent months, the stock trades at 21.8× forward P/E (or $32.20 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.

Stocks We Would Buy Instead of Malibu Boats

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