Leslie’s (LESL) short, mcap=$2.3bn, price $12.49 vs $16.45

LESL short pitch:
– Pool chemicals and equipment retailer, with chemicals being 45% of sales.
– Benefitted from chlorine shortages that drove pricing and market share gains.
– LESL revenue grew +60% and EBITDA +80% since 2019.
– Shortages were caused by one of the three US chlorine suppliers being offline for 3 years due to a factory fire as well as general covid related supply chain issues.
– Trichlor chlorine tablet prices were up +2.5x.
– With a new higher capacity plant already online and ramping up, chlorine has recently come back into balance and prices started to fall.
– LESL market share gains are set to revert with revenues and earnings expected to decline in 2023, with EPS expectations 30% below consensus.
– Inventories are at all-time highs.

LESL valuation:
– On consensus 2023 estimates, LESL trades 16x PE and 11x EBITDA.
– On the author’s estimates, which are -30% below consensus, LESL trades 24x PE and 14x EBITDA.
– Discounting back 17x $0.55/share 2025 EPS valuation results in the $8/share target today.

Exp. gain: 50% to $8/share

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