OneWater Stock: Growth Play at a Discount

I’m bullish on the future of OneWater (ONEW). Although the company is a young enterprise, it has grown immensely over a short period. It has acquired many major chains, and become a corporation with a wide range of holdings.

It operates in 15 states and 75 retail locations, alongside several online marketplaces. The company is one of the largest retailers specializing in marine items.

OneWater provides various services related to boats, such as finance, insurance, and repairs. It offers new boats sourced from multiple manufacturers and trade-in services.

The company sells boats of all shapes and sizes, but its current revenue doesn’t depend on any single manufacturer. It also offers delivery services for all types of boats and after-sales support for its products.

OneWater’s business strategy is to make acquisitions as rapidly as possible. The company also adds locations that serve different needs to provide consumers with more options when conducting transactions.

As in most companies, the pandemic curtailed OneWater’s plans temporarily. However, the long-term impact its efforts have had on the company is more positive than it could have been otherwise.

Boating became very popular in the wake of the pandemic, and the booming demand for outdoor activities has strengthened OneWater’s long-term profile.

Passionate people looking for rest and relaxation have turned to boating as an alternative to other forms of entertainment that involve too much physical contact with others. Therefore, in the near and long term, OneWater is undervalued versus its potential.

Q1 Results Highlight OneWater Strengths

OneWater Marine announced Q1 results with impressive revenue performance and share gains across its metrics.

Revenues have increased by 57% so far this year, adjusted EBITDA has increased 146% year-over-year, and the net profit has increased by 99% year-over-year. OneWater Marine has also continued its strategy of acquisitions. Recently, it acquired Quality Boats and JIF Marine to boost its portfolio.

In 2022, management sees high single-digit same-store sales despite the ongoing inventory issues. The M&A pipeline for OneWater remains robust, and it will look to execute 4-6 dealership deals and 2-4 parts and services transactions annually.

Where is OneWater Headed?

OneWater believes that consumer demand will remain high, and it sees pre-sold inventory remaining elevated at least through another quarter.

Boat upgrades have become more prevalent with the increasing popularity of new technologies. Customers are highly motivated to upgrade boats and get out on the lake to test everything out.

High margin Parts and Other Revenue saw an impressive increase of 111% in the quarter. Acquisitions like these are major drivers behind recent growth, which is felt across both same-store and overall results.

The number of boats on the water grew at an explosive rate, and this is a strong sign that its strategy of entering new sectors to generate more value across the board is working.

OneWater faces competition from local small businesses that have fewer locations. The competition is sometimes intense, and these businesses can provide a bit of a challenge for OneWater customers.

OneWater provides various products and services, including plumbing repairs and sporting goods. The company competes with others that offer something similar to this, such as other plumbing companies.

OneWater has a competitive edge when it comes to product selection. It can reach more customers with the company’s range of offerings, rather than just competing for a smaller pool of customers.

OneWater is in a great position to capitalize on a range of opportunities that small retailers cannot offer due to the lack of a diversified base of resources.

What Are the Risks?

OneWater estimates that a sizable portion of the retailer dealership market comprises smaller franchises (4,300 stores) nationwide. They are typically not as good in terms of brands, products, and services they can provide. Therefore, companies such as OneWater have an opportunity to compete with them for their customers’ business.

Rapid growth and acquisitions could cause concern, but the company is careful in its approach. The company wants to maintain an honest and fair reputation in its acquisition process so far. OneWater is searching for talented individuals to continue the acquired company’s operations with its valuable experience.

OneWater can acquire companies and expand its market reach quickly thanks to its diverse acquisition models. If there are no attractive acquisition targets available, OneWater will consider opening its own location to continue expanding.

In addition, e-commerce websites have the potential to provide another avenue of sales growth that can help increase the company’s bottom line.

Wall Street’s Take

Due to the wider economic downturn earlier this year, OneWater has not done too well. However, sentiment on Wall Street for the stock is bullish.

OneWater holds a Moderate Buy consensus rating based on two Buys assigned in the past three months. ONEW’s average price target is $59, implying 72.2% upside potential.

Bottom Line

OneWater is at the top of its game. While it started out as a small chain, it later became much more successful, and took over other operators by adapting to the needs of its clientele.

OneWater is growing quickly, and its store presence is increasing rapidly. It allows for larger inventories at less cost, and is great for browsing online. This will only fuel the fire, especially e-commerce capabilities, which will power its business moving forward.

With revenue diversified and net profit margins up, the company has improved its financial outlook. OneWater was recently able to close on the acquisition of T-H Marine, giving it strong bonuses for this strategy, in effect.

Overall, the company is in a good position and will only improve from here.

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