Is Hayward (HAYW) a Buy After a Strong Q2 Earnings Beat?

Hayward Holdings (NYSE: HAYW), a global leader in pool equipment and automation, delivered a standout Q2 2025 earnings report that underscores its operational resilience and strategic agility. The company's results—a 6.9% revenue beat and a 4.3% EPS beat—highlight its ability to navigate macroeconomic headwinds while expanding margins. For investors, the question remains: does this performance, combined with Hayward's market leadership and industry tailwinds, justify a long-term investment, even as valuation metrics suggest some overextension?

Operational Resilience in a Challenging Environment

Hayward's Q2 results reflect a company that has mastered cost control and pricing power. Gross profit margins hit a record 52.7%, up 170 basis points year-over-year, driven by strategic price increases to offset tariffs and inflation. Adjusted EBITDA margin expanded 50 bps to 29.5%, while net income margin surged 180 bps to 15.0%, demonstrating robust profitability.

The company's operational discipline is particularly noteworthy given rising SG&A expenses, which climbed 14% to $71.9 million. CEO Kevin Holleran attributed this to investments in customer care teams and wage inflation but emphasized that these costs were offset by reduced warranty expenses and operational efficiencies. This balance between reinvestment and cost discipline positions Hayward to maintain profitability even as economic conditions fluctuate.

Margin Expansion and Strategic Execution

Hayward's ability to expand margins despite higher costs is a testament to its pricing power and operational execution. The company's focus on innovation—such as its IoT-enabled SmartPad™ automation systems—has allowed it to capture premium pricing while meeting growing demand for energy-efficient solutions.

Moreover, Hayward's supply chain strategy has minimized exposure to global disruptions. By reducing reliance on Chinese sourcing from 10% to 3% of cost of goods sold by year-end, the company has insulated itself from tariff-related volatility. This proactive approach, combined with a net leverage ratio of 2.1x (the lowest in three years), enhances its financial flexibility and resilience.

Market Leadership and Industry Tailwinds

Hayward's dominance in the pool equipment sector is underpinned by a 80% reliance on the aftermarket—a recurring revenue model that provides stability. The aftermarket segment, which includes maintenance and replacement parts, is highly resilient, as highlighted by CFO Ivan Jones. This model, coupled with a strong brand reputation, ensures steady cash flows even during economic downturns.

The broader industry is also on a growth trajectory. The Global Pool Equipment Market is projected to grow at a 7.12% CAGR through 2030, driven by demand for energy-efficient products, sunbelt migration, and the rise of smart home technologies. Hayward is well-positioned to capitalize on these trends, with its SmartPad™ and other innovations aligning perfectly with consumer preferences for automation and sustainability.

Valuation Concerns: A Fair Premium or Overreach?

Despite its strengths, Hayward's valuation metrics raise questions. The stock currently trades at a P/E ratio of 26.3x, above its fair value estimate of 21.2x and the US Building Industry average of 21.4x. A PEG ratio of 2.69x further suggests the market is pricing in aggressive growth that may be difficult to sustain.

However, these metrics must be contextualized. Compared to peers like Griffon (GFF) and UFP Industries (UFPI), Hayward remains relatively undervalued. Its P/E of 26.3x is significantly lower than Resideo Technologies' (REZI) 81x, even as Hayward outperforms in margin expansion and cash flow generation. Additionally, the company's full-year guidance—$1.07–1.10 billion in revenue—though conservative, reflects a cautious stance in a volatile macro environment rather than a lack of confidence in its long-term potential.

Is HAYW a Buy?

For long-term investors, Hayward's combination of operational excellence, margin resilience, and market leadership offers compelling value. While the current valuation is elevated, it is justified by the company's ability to generate consistent cash flows, expand margins, and lead innovation in a growing industry.

The key risks include a slowdown in residential construction or a shift in consumer spending toward non-essential goods. However, Hayward's focus on the aftermarket and energy-efficient solutions mitigates these risks. With the pool equipment market expected to nearly double in value by 2030, Hayward's strategic positioning and financial health make it a durable holding.

Investment Thesis:
- Buy for investors seeking exposure to a resilient sector with long-term growth potential.
- Hold for those concerned about near-term valuation pressures but confident in the company's ability to deliver margin expansion.
- Avoid if macroeconomic conditions deteriorate sharply, impacting discretionary spending.

Hayward's Q2 performance and strategic execution reaffirm its status as a market leader. While the stock may not offer immediate bargain-bin appeal, its fundamentals and industry tailwinds make it a compelling candidate for a diversified, long-term portfolio.