MasterCraft Boat Holdings Inc. (NASDAQ: MCFT) is a boat manufacturing company that operates three brands: Mastercraft (ski/wake), Crest (pontoon), and Aviara for luxury day boats. Founded in 1968, the MasterCraft brand leads the portfolio and is the biggest revenue driver for MCFT. The stock price has consistently declined in recent times to hover above $16 on October 22 due to years of market volatility, currently driven by high prices and interest rates. In this article, we summarize a July 2024 bullish thesis published by rhubarb on Value Investors Club.
An aerial view of boat show with recreational boats and luxury day boats on display.
MCFT’s robust balance sheet, stable market share in an attractive niche, cheap stock price, and competitive edge due to turmoil at rival companies can help fuel its rebound as signs emerge that the industry is currently navigating the bottom of the downward cycle. While the COVID-19 pandemic boosted demand from boat OEMs, point-of-sale demand declined steeply by 2022-end before nosediving in H2 2023. Retail demand remains weak due to elevated prices, leaving boat dealers with excessive inventory. Furthermore, investors should note that more lightly used boats are going for sale, which isn’t generally a good sign. Considering the market, led by incumbents MCFT, Malibu, and Nautique, experiences a U-shaped recovery, the industry is unlikely to experience significant changes in market share since evidence shows the sector has long been a stable oligopoly. Furthermore, OEMs share good relationships with dealers, who often stick with one brand, given the rebates for meeting annual volume targets.
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Although MCFT rival Malibu had maintained considerable customer concentration with Tommy’s Boats, which was an exclusive dealer accounting for 23% of 2023 overall brand sales, the partnership ended this year when Tommy’s sued Malibu for stuffing the channel before filing for bankruptcy within a month. The situation offers a window for MCFT to increase market share as Malibu struggles to replace Tommy’s. Meanwhile, the MCFT stock is currently very cheap, trading at approximately 7.4X midcycle unlevered earnings. Given MCFT’s consistent returns on capital, the stock price could surge beyond $30 as earnings recover down the line, and management remains optimistic about boosting profitability as the company cost structure remains highly variable. Lastly, large shareholders like Coliseum Capital, which recently increased its stake in MCFT to around 20%, can ensure disciplined capital allocation. The company could also explore selling off the struggling Aviara business if it can’t efficiently find a way to profitability in a reasonable duration. MCFT management could also mull waiting 12-24 months for the market cycle recovery before ramping up marketing efforts.
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