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

Hayward Holdings (HAYW) has long been a cornerstone of the pool equipment industry, but its recent Q2 2025 earnings report has reignited debates about its valuation in a sector that balances high growth with discretionary spending. With a 5% year-over-year revenue increase to $299.6 million, margin expansion, and a resilient balance sheet, the company appears to be executing its strategy with precision. Yet, investors must ask: Does this operational strength justify a P/E ratio of 26.9x and an EV/EBITDA multiple of 14.1x in a market where discretionary demand can swing with economic cycles?

Operational Execution: A Recipe for Margin Expansion

Hayward's Q2 results were a masterclass in strategic pricing and cost management. The company's gross profit margin expanded by 170 basis points to 52.7%, driven by price adjustments to offset inflation and tariffs, operational efficiencies in manufacturing, and the integration of the ChlorKing acquisition. Adjusted EBITDA of $88.2 million (29.5% of sales) reflects a 50-basis-point margin expansion year-over-year, outpacing its North America segment's 6% revenue growth.

The North America segment, which accounts for 88% of total sales, remains a fortress of profitability. Despite a volume decline, pricing power and the ChlorKing acquisition offset weakness, delivering $83.4 million in segment income. Meanwhile, the Europe & Rest of the World (E&RW) segment, though smaller, saw favorable currency translation and pricing, even as segment income dipped 8% due to lower volumes.

Hayward's balance sheet is another pillar of strength. With $365.1 million in cash and $163.3 million available under its revolving credit facilities, the company has the liquidity to fund innovation, M&A, or shareholder returns. Its net leverage ratio of 2.1x is the lowest in over three years, signaling improved financial flexibility.

Valuation in a Discretionary Sector: Justified or Overstretched?

The pool equipment industry is a classic discretionary sector—demand is tied to consumer spending on non-essentials like home upgrades and outdoor living. While Hayward's P/E of 26.9x and EV/EBITDA of 14.1x appear elevated compared to the US Building Industry average of 21.4x, they align with its market leadership and margin profile.

Hayward's valuation is supported by its ability to generate consistent cash flow. Its free cash flow margin of 16% (LTM) and $168 million in FCF position it to fund growth without overleveraging. However, the discretionary nature of its business introduces risk. If macroeconomic conditions deteriorate, demand for pool equipment could soften, pressuring margins.

A key differentiator is Hayward's aftermarket business model, which generates recurring revenue from service and parts. This contrasts with one-time sales models in other discretionary sectors, offering a buffer during downturns. Additionally, product innovation—such as the SmartPad™ automation system—cements its leadership in a tech-driven market.

The Case for a Cautious Buy

Hayward's Q2 results demonstrate that it can navigate macroeconomic headwinds through pricing discipline and operational rigor. Its raised 2025 guidance ($1.07–1.10 billion in revenue) and $280–290 million EBITDA target suggest confidence in sustaining growth. However, the stock's valuation requires scrutiny.

• Upside Potential: If Hayward maintains its EBITDA margin above 29% and delivers mid-single-digit revenue growth, its EV/EBITDA multiple could expand to 16x–18x, unlocking $25–$28 per share.
• Downside Risks: A recession or housing market slowdown could erode demand, particularly in the E&RW segment. SG&A expenses, which rose 14% in Q2, could also pressure margins if growth slows.

Investors should also consider the broader discretionary sector's valuation. While Hayward's P/E of 26.9x is higher than the 21.4x industry average, it's lower than peers like Resideo Technologies (REZI) at 81x. This suggests Hayward is fairly valued relative to its peers, especially given its stronger cash flow and margin profile.

Final Verdict: A Buy for the Long-Term

Hayward Holdings is not a speculative play—it's a company with a durable business model, a history of margin expansion, and a strong balance sheet. While its valuation isn't cheap, it's justified by its ability to generate consistent cash flow and innovate in a high-growth sector. For investors with a 3–5 year horizon, HAYW offers a compelling mix of growth and stability.

Investment Advice:
- Buy for long-term investors who can tolerate short-term volatility and are positioned to benefit from the outdoor living trend.
- Wait if you're risk-averse or concerned about macroeconomic risks. Monitor Q3 guidance and the company's ability to sustain margin expansion.

In a world where discretionary spending is both a luxury and a necessity, Hayward Holdings has proven it can thrive. Whether it's a buy depends on your willingness to bet on its ability to outperform in a sector where demand is as fickle as it is lucrative.