MarineMax currently trades at $24.71 per share and has shown little upside over the past six months, posting a small loss of 2.1%. The stock also fell short of the S&P 500’s 13% gain during that period.

Is now the time to buy MarineMax, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.

Why Do We Think MarineMax Will Underperform?

We're cautious about MarineMax. Here are three reasons you should be careful with HZO and a stock we'd rather own.

1. Flat Same-Store Sales Indicate Weak Demand

Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).

MarineMax’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat.

2. EPS Trending Down

We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for MarineMax, its EPS declined by 54.5% annually over the last three years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.

3. High Debt Levels Increase Risk

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

MarineMax’s $1.25 billion of debt exceeds the $170.4 million of cash on its balance sheet. Furthermore, its 10× net-debt-to-EBITDA ratio (based on its EBITDA of $109.8 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. MarineMax could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope MarineMax can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of MarineMax, we’ll be cheering from the sidelines. With its shares underperforming the market lately, the stock trades at 35.5× forward P/E (or $24.71 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. We’d suggest looking at one of our all-time favorite software stocks.

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