My Favorite Compounder

Set it and forget it.

To be a great investor or capital allocator, you need to be able to look out into the future and know 1) what will stay the same 2) what is going to change - then, translate this perspective into the corresponding financial implications. That is extremely difficult to do accurately. Therefore, I like to stay focused on #1. I find it to be a more predictable and reliable basis to serve as an investment foundation. As Bezos suggests, “it helps to base your strategy on things that won’t change.”

This is a good heuristic in evaluating the investment I will cover here. How does it apply? I think it’s highly probable humans will continue to demand higher and higher standards of living. This is likely to result in higher demand for goods and, increasingly, technologies that make life easier (enter AI, robots, connected device ecosystem, etc.) and remain in an early stage of their growth trajectory. What do these all have in common? The need for power to enable their production and/or consumption.

At a micro level, what does this company have to offer?

✅ Guide to increase EBITDA 75% over the next 3.5 years through cash and operational cash flow

✅ Industry leading products and returns on capital

✅ Backlog >3x trailing 12 month revenue

✅ Exposure to a consolidated market in the midst of a significant up cycle

… all at a reasonable valuation of 12x. (EV / EBITDA)