Malibu Boats’s stock price has taken a beating over the past six months, shedding 25.1% of its value and falling to a new 52-week low of $29.07 per share. This may have investors wondering how to approach the situation.

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

Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons why MBUU doesn't excite us and a stock we'd rather own.

Why Do We Think Malibu Boats Will Underperform?

Founded in California in 1982, Malibu Boats (NASDAQ: MBUU) is a manufacturer of high-performance sports boats and luxury watercrafts.

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 1,222 in the latest quarter, and over the last two years, averaged 28.5% 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 29% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.

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. After the recent drawdown, the stock trades at 9× forward price-to-earnings (or $29.07 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d recommend looking at a dominant Aerospace business that has perfected its M&A strategy.

Stocks We Would Buy Instead of Malibu Boats

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