Over the past six months, Hayward’s stock price fell to $13.95. Shareholders have lost 10.5% of their capital, disappointing when considering the S&P 500 was flat. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Hayward, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Hayward Will Underperform?
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why we avoid HAYW and a stock we'd rather own.
1. Core Business Falling Behind as Demand Declines
Investors interested in Home Construction Materials companies should track organic revenue in addition to reported revenue. This metric gives visibility into Hayward’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Hayward’s organic revenue averaged 1.1% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Hayward might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. EPS Trending Down
We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Hayward’s full-year EPS dropped 59.5%, or 16.8% annually, over the last three years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Hayward’s low margin of safety could leave its stock price susceptible to large downswings.
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. On average, Hayward’s ROIC decreased by 3.6 percentage points annually over the last few years. 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 making their customers lives easier, but in the case of Hayward, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 18.4× forward P/E (or $13.95 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now. Let us point you toward a top digital advertising platform riding the creator economy.
Stocks We Like More Than Hayward
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