Hi reader,

I have studied various companies since adding the last company to my portfolio, but none convinced me like the one I will discuss in this article.

I imagine most of you will not have heard about this company, but you have probably heard about one of its competitors: The company I am adding to my portfolio is a “newcomer” to the stock market, but one of its main peers isn’t and has achieved a total return CAGR of 21% over the last decade. The company I am profiling today is significantly smaller than this peer (with a market cap just under $6 billion), and make its debut in financial markets in 2021 (good timing). However, I think it’s an outstanding company with a bright future. Despite the company being a newcomer to financial markets, it’s not a young company, having a 70-year long history. The company did not IPO previously because it did not need it; it has been profitable for a long time and is (still) family-owned.

I imagine you will not completely understand all the points that I am about to list below (at least not until you read the entire article series), but I thought it would be a good idea to share a brief investment thesis in the first article. Much more detail will be shared in coming articles, but I believe these points pretty much sum up the investment thesis:

• The company operates in an oligopolistic industry made up of rational players (three competitors have recently signed an “alliance” to take their products to market).

• The company’s products make up a low portion of their customers’ costs and are mission-critical. They are also protected by regulatory barriers.

• The industry is expected to grow significantly over the coming years, with a good portion of this growth coming from higher-margin sources.

• It’s family-owned and operated (third generation), and management exhibits clear traits of long-term thinking.

• The company’s compensation structure is based on ROIC and organic growth, which is not a coincidence considering they aim to replicate winning formula of its main competitor aided by non-other than its former CEO (who serves on the board)

• The company is currently undergoing a significant Capex plan to prepare for future growth, but the capacity expansion is demand-driven and based on multiyear agreements with customers (so there’s high visibility).

• The stock is currently swamped with opportunity costs because it’s facing several temporary headwinds (besides the capacity expansion plan). I must add that despite an almost $6 billion market cap, it’s pretty much out of reach for many funds due to its tiny float (the family still owns a considerable chunk of the company).

The company undoubtedly has an optically high multiple, but its true profitability is currently being masked by temporary headwinds. Growth has significantly stalled recently, with 2024 expected to be a transition year. The company was a clear pandemic beneficiary (more in terms of stocking than Covid) but I am confident that growth will return. 

Without further ado, let’s jump right into the company’s history.