Latham Group

Latham Group Inc earns a 4-star quantitative star rating, reflecting our opinion that this share class offers a somewhat attractive opportunity for investors. The stock currently trades at a 28% discount to our quantitative fair value estimate of $8.90 per share; however, caution is warranted due to this estimate's high uncertainty rating.

The company's valuation metrics increase our fair value estimate. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. For example, the firm's enterprise value to market value ratio of 1.4 falls in the top 30% globally. While highly leveraged firms can be risky, they can also be highly rewarding. This company's high enterprise value relative to its market value suggests that wise investments will yield outsize returns for investors. We believe this is a sign that shares could be undervalued.

The company's balance sheet is an additional encouraging factor. Leverage can enable a company to invest in growth, potentially boosting shareholder value more than equity financing alone. The firm's EBITDA/interest coverage ratio of 3.7, for example, lies in the bottom 30% compared with global peers. Although the firm's ability to cover interest payments with EBITDA is limited, shares could sharply rebound if economic circumstances change or recent investments reduce fears of default. This characteristic further promotes our favorable price/fair value ratio.

The company's quantitative economic moat rating of none suggests any excess returns could erode quickly as competition arrives. Additionally, the firm's moderate financial health score suggests it is acceptably positioned against adverse economic circumstances.