New Investment Idea #2 (2024)

• Small-cap with little coverage that has comfortably and consistently beaten the S&P 500 over 5, 10, 15, and 20-year periods.

• It grows organically in the mid single digits and reinvests the majority of FCF into M&A (ROIIC above 15-20%). The market is highly fragmented and the company’s market share is less than 1.5%.

• The business will soon be almost half a century old and the founders still own and control a good portion of the outstanding shares and votes.

• Asset-light business with high cash conversion and recurring revenues that provides a critical, low-cost product. High barriers to entry and customers with little incentive to switch, which allow the company to raise prices every single year.

• Crisis-resistant business model that managed to grow during 2008-09 and 2020-2021.

• The stock is trading at its most attractive valuation in years with no deterioration in business fundamentals.

• I expect FCF per share to grow above a CAGR of 15% for many years to come. There are plenty of reinvestment opportunities in a TAM that is only getting bigger. Time is on the company’s side.