A 4x EBITDA Monopoly Pretending to Be a Middleman
PoW #40 | How misplaced regulation handed a debt-free owner-operator a monopoly... and set up a 100%+ mispricing
We have prepped a not-so-short report on an exceptional company for you today.
Imagine a business that earns a 26.6% Return on Invested Capital (ROIC), carries zero bank debt, and converts over 100% of its earnings into hard free cash flow.
It’s not a mega-hyped, high-flying tech company but rather an asset-light B2B and B2C platform that manufactures and distributes everyday essential products across thousands of retail doors.
At a $250m market cap, the business trades at an absurd 4x EV/EBITDA, or, as we prefer to read it, a 16.4% Free Cash Flow yield with a 4% dividend on top.
Mispricing?
Since 2023, the market has been all about the sector getting regulated. In our eyes, during that time, management has proven that they know what they’re doing.
They digitized their supply chain and leveraged their already strong balance sheet to turn a regulatory hellhole into an actual core component of their moat.
The incoming pressures required (and still require) massive amounts of working capital, which crush smaller (especially leveraged) competitors. This company is perfectly positioned to absorb their lost market share and emerge with higher margins.
This also happens to be an actual owner-operator setup where management owns over 50%+ of the outstanding shares. That means that their wealth is driven by share price performance, not padded cash bonuses or dilutive stock grants.
Their capital discipline track record is on point:
Zero dilution: Shareholder dilution is historically non-existent.
Self-funded growth: All major acquisitions are paid for purely via organic free cash flow.
Opportunistic buybacks: When the market mispriced the stock, they (very quietly) retired a small part of the float.
Since it’s not too illiquid, we should disclose that we’ve already deployed ~50% of our intended capital at current (depressed) prices, holding the rest to monitor the final regulatory rollout and a few other key events that we will discuss below.
Finding a debt-free, 26% ROIC compounding engine trading at 4x cash flow with a majority insider-owner at the helm is exceptionally rare.
Let’s break it down.
But before we do, note that we’ve been tracking this company for about two years, spoken with key stakeholders for a long time, and featured it on several past watchlists.
The Inner Circle already knows what’s up 😉
If you haven’t jumped into the group chat yet, you’re missing out. Here’s a quick peek at what went down this week alone.
You won’t find any hyped up signal-trading scammy behavior here. Instead, expect insightful commentary on our holdings, major changes, dives into earnings and interviews, and early heads-up on upcoming releases (plus a say in what we’re building).
You get instant access to 13 years of hard-earned experience and back-and-forths with a genuinely top-notch community.
To our Inner Circle members: huge thank you for the non-stop support.
Your notes and DMs mean everything, and honestly, having you in our corner makes us want to be better every single day.
As we now do every week for transparency, here is our list of past Pick of the Week posts and their returns since publishing:
Equally weighted picks: +19.15%
Fund-allocated picks: +31.17%
Pick of the Week. A curated series of high-conviction research on companies currently under our microscope. We screen for specific dislocations where the market has mispriced the balance sheet or earnings power.
None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.
