Typically, when the market gurus speak about playing the home improvement stocks, The Home Depot, Inc. (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW), with market caps of $105 billion and $43 billion, respectively, are at the top of the watch list. They have long track records of share price appreciation and consistent dividend payouts. And, in the event a natural disaster occurs that wipes out entire neighborhoods, one would think you can’t beat these two companies. However, I believe 3 other home improvement companies can be just as good, if not better, plays in this sector.
Tile Shop Hldgs, Inc. (NASDAQ:TTS)
Ceramic tile, on both a dollar and square foot basis, has nearly a 25% market share of installed floor covering products, second only to carpet. Soaring over 38% since its IPO in August 2012, Tile Shop Hldgs, Inc. (NASDAQ:TTS) reminds me a lot of Lumber Liquidators. I mentioned Lumber Liquidators a few months ago in my articl: Improve Your Portfolio With Home Improvement. Since that particular article, the lumber company has gone up over 36% in share price. In my opinion, the only difference between Tile Shop and Lumber Liquidators is that one sells tile and one sells wood.
Tile Shop Hldgs, Inc. (NASDAQ:TTS) currently is in expansion mode, building up its stores, with 68 across 22 states – a 28% year-over-year unit growth. Their recent 4th quarter 2012 results show all the signs of a successfully growing company, with a 9.8% increase in same store sales, and net sales increasing 22.5% overall. Tile Shop also recently completed their 4th distribution center, which should help 2013 growth and reduce shipping expenses while improving logistics.
What I like about Tile Shop the most is that there are no real competitors in the market. Tile Shop sells its products through its own supply chain and doesn’t rely on bigger retailers to sell their own products. Tile also has distinct advantages versus other floor coverings like hardwoods. Tile requires less maintenance, is easier to replace damaged tiles, cheaper than premium woods on the low-end with a price range of $1-$20 per tile versus $8-$14 per floor board, is more moisture resilient, and has far more customizable patterns to meet individual tastes.
I would say, however, that Tile Shop Hldgs, Inc. (NASDAQ:TTS) is a long-term play. As they are expanding their footprint across the US, their net income will inevitably take a hit in the short-term. Net income went negative in 2012 (-$46.9 million) versus 2011 ($31.4 million). Unlike many speculative IPOs of recent years, I believe Tile Shop fits the mold of long-term success.
Pool Corporation (NASDAQ:POOL)
There are over 10.6 million swimming pools in the US today. $6,243 is the average cost to build an above ground pool, while $21,919 is the average cost to build an in-ground pool. More importantly, 17% people urinate in pools, and 35% of people jump into public pools without showering first. What does this all mean? This means that Pool Corporation (NASDAQ:POOL), a wholesale distributor of swimming pool supplies, equipment, and related leisure products, is swimming in cash. When it costs an average of $87.50 just in pool chemicals per month for a typical pool, this is a company that has no problem with repeat customers.