We came across a bullish thesis on Malibu Boats, Inc. (MBUU) on Value Degen’s Substack by Unemployed Value Degen. In this article we will summarize the bulls’ thesis on MBUU. Malibu Boats, Inc. share was trading at $38.46 as of Sept 13th.

A colorful fleet of recreational fiberglass powerboats in full sail.

As interest rate cuts loom on the horizon, the uncertainty of how various sectors will respond is becoming increasingly clear. One company that has stood out as a potential beneficiary of future rate cuts is Malibu Boats (MBUU). Although the investor believes it may be early, the company’s stock chart suggests it could be at an inflection point, reinforced by insider buying—a clear vote of confidence from management. Significant insider purchases, amounting to a notable percentage of the company’s market capitalization, have elevated Malibu Boats to the top of their watchlist. Malibu Boats, a vertically integrated manufacturer with a 30% market share in wakeboarding and waterskiing boats, operates well-known brands like Malibu, Axis, and Cobalt. The company continues to grow through acquisitions and is eyeing further expansion into new boating categories.

With a new CEO, Steve Menneto, who previously led significant growth at Polaris’ Indian Motorcycle division, Malibu Boats seems poised for strong leadership. Despite the challenges of the boating market compared to his prior experience, Menneto’s success in scaling operations bodes well for Malibu’s future. Even in a tough market environment, Malibu’s variable cost structure allowed it to remain cash flow positive for FY2024, and it has retired its long-term debt while continuing share buybacks. Management’s FY2025 guidance projects a 10%-12% improvement in revenue, aiming for $1 billion, driven by market share gains and the normalization of inventory levels.

In terms of valuation, Malibu Boats is attractively priced at just over 5x normalized free cash flow based on its 2023 cash flow of $130 million and a market capitalization of $700 million. A return to pre-pandemic revenue levels of $1.38 billion could push the stock to $134 per share, representing a 3.5x return from its current price of $35.38. Should this occur within the next 3-4 years, the compound annual return would be an impressive 39%. On a shorter-term basis, the company’s projected FY2025 EBITDA between $100 million and $120 million results in a forward P/E ratio of around 7x, a highly favorable valuation for a growing luxury brand.

Longer term, Malibu’s ability to double revenues approximately every four years, combined with potential multiple expansion, could yield a 25% compound annual return. If future interest rate cuts lead to increased consumer spending through home equity loans and refinancing, Malibu Boats could further benefit, presenting substantial upside potential for long-term investors.

Malibu Boats, Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 12 hedge fund portfolios held MBUU at the end of the second quarter which was 12 in the previous quarter. While we acknowledge the risk and potential of MBUU as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MBUU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.