Waterco Limited (ASX:WAT): Insider Dominance and Profitability Fuel a Hidden Gem

Sydney, Australia — Waterco Limited (ASX:WAT), a niche player in the pool equipment market, has quietly built a compelling investment case through a rare combination of 72% insider ownership, led by CEO Soon Goh's 61% stake, and robust financial performance. With aligned incentives between management and shareholders, a 29% YoY rise in EPS, and institutional underownership suggesting undervaluation, Waterco presents a contrarian opportunity in an overlooked sector.

The Power of Insider Ownership

Waterco's governance structure is unparalleled in its industry. CEO Soon Goh, who founded the company in 1981, holds a staggering 61% of shares, while insiders collectively own 72% of the company. This level of control is not merely symbolic—it reflects a direct financial stake in the company's success.

Recent insider activity underscores this commitment. In December 2024, Goh added AU$15 million to his holdings at an average price of AU$7.00 per share, a bold move that demonstrates confidence in the company's long-term trajectory. This buying occurred during a period when the stock traded at AU$7.88, suggesting Goh was undeterred by short-term fluctuations—a hallmark of true conviction.

The concentrated ownership structure reduces agency risks, as misaligned incentives are minimized. When management is effectively the majority shareholder, decisions prioritize long-term value creation over short-term gains.

Financial Performance: Strong Growth Amid Volatility

Waterco's financials tell a story of resilience. Despite a 6% dip in first-half 2025 EPS to AU$0.17 (from AU$0.20 in the prior year period), the company has delivered a 29% YoY rise in annual EPS through 2024, driven by cost efficiencies and market share gains.

The company's focus on high-margin, energy-efficient pool equipment—such as its EcoLogic pumps—has positioned it to capitalize on the growing demand for sustainability in residential and commercial pools. With a market capitalization of AU$179 million and strong cash flows, Waterco is well-equipped to invest in R&D and geographic expansion.

Institutional Underownership: A Red Flag or a Buying Opportunity?

Waterco's lack of institutional ownership is striking, especially given its profitability. Institutional investors typically avoid small-cap stocks with low liquidity or uncertain fundamentals, but Waterco's 16% public ownership and minimal analyst coverage suggest it is flying under the radar.

This institutional neglect creates an anomaly: a company with a 248% five-year stock return and a dominant insider team is being ignored by mainstream investors. For contrarians, this is a classic case of underappreciated value. The absence of institutional ownership also reduces volatility tied to macroeconomic shifts, as the stock isn't subject to large-scale sell-offs from fund rotations.

Market Position: A Leader in a Niche, Growing Industry

Waterco's niche focus on pool equipment—a market with low competition and recurring revenue streams—offers defensive characteristics. Its products cater to both residential and commercial clients, from backyard pools to resorts and water parks. With a 30% market share in Australia, the company is poised to expand into Asia and Europe via partnerships like its recent tie-up with a Thai distributor.

The global pool equipment market is projected to grow at a CAGR of 5.2% through 2030, driven by urbanization and demand for water conservation. Waterco's innovation—such as its IoT-enabled filtration systems—positions it to capture this growth.

Investment Considerations

Buy Signal:
- Valuation: At 25x trailing P/E, Waterco trades at a discount to its growth rate. A re-rating could occur if institutional investors take notice.
- Catalysts: New product launches (e.g., AI-driven pool management systems) and market expansion into Southeast Asia.

Risks:
- Geographic concentration: Over 80% of revenue comes from Australia, exposing the company to local economic downturns.
- Regulatory headwinds: Environmental regulations could increase costs for pool equipment manufacturers.

Conclusion: A Rare Alignment of Ownership and Performance

Waterco Limited is a textbook example of insider ownership driving value creation. With Goh's 61% stake and recent buying activity, management's incentives are perfectly aligned with shareholders. Combined with a 29% EPS growth rate and a niche market with structural tailwinds, Waterco offers a compelling risk-reward profile.

For investors seeking undervalued stocks with strong fundamentals, Waterco is a hidden gem. The lack of institutional ownership presents a rare entry point before the market catches up.

Investment Advice:
Consider a gradual accumulation strategy, targeting an entry below AU$8.50 (current price: AU$8.00). Pair this with a close watch on institutional flows and earnings updates.

Disclosure: The author holds no position in Waterco Limited.