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Boring Businesses aka Hidden Champions


Guest hellsten
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Guest hellsten

I'm wondering if people on this board are following or own boring businesses, or hidden champions, if you want to call them that.

 

I stumbled on Copart, Inc. - CPRT today:

http://www.copart.com/

 

Website looks like its from 1999, even though their main business is selling online. Looks like it has been a 10-bagger in just over 10 years. Share count decreased from > 186 to 130 in 10 years according to Morningstar.

 

The company is on the Forbes Best Small Companies list:

http://www.forbes.com/companies/copart/

 

I guess many hidden champions can be found on the list:

http://www.forbes.com/best-small-companies/list/

 

Any other ways of finding hidden champions? Would be interesting if you could screen for hidden champions, e.g. sales < 1 billion and market share > 30%.

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Guest hellsten

Geoff Gannon wrote an article on Hidden Champion screening.

 

He's also mentioned Copart in a few of his gurufocus articles.

 

Thank you. I just read Geoff's article. I see EBIX and ADVC on the list. Both have been discussed on this board.

 

It seems Peter Lynch liked Hidden Champions, at least most of them seem to have boring names:

 

When evaluating companies, there are certain characteristics that Lynch finds particularly favorable. These include:

* The name is boring, the product or service is in a boring area, the company does something disagreeable or depressing, or there are rumors of something bad about the company--Lynch likes these kinds of firms because their ugly duckling nature tends to be reflected in the share price, so good bargains often turn up. Examples he mentions include: Service Corporation International (a funeral home operator--depressing); and Waste Management (a toxic waste clean-up firm--disagreeable).

* The company is a spin-off--Lynch says these often receive little attention from Wall Street, and he suggests that investors check them out several months later to see if insiders are buying.

* The fast-growing company is in a no-growth industry--Growth industries attract too much interest from investors (leading to high prices) and competitors.

* The company is a niche firm controlling a market segment or that would be difficult for a competitor to enter.

* The company produces a product that people tend to keep buying during good times and bad--such as drugs, soft drinks, and razor blades--More stable than companies whose product sales are less certain.

* The company is a user of technology--These companies can take advantage of technological advances, but don’t tend to have the high valuations of firms directly producing technology, such as computer firms.

* There is a low percentage of shares held by institutions, and there is low analyst coverage--Bargains can be found among firms neglected by Wall Street.

* Insiders are buying shares--A positive sign that insiders feel particularly confident about the firm’s prospects.

* The company is buying back shares--Buybacks become an issue once companies start to mature and have cash flow that exceeds their capital needs. Lynch prefers companies that buy their shares back over firms that choose to expand into unrelated businesses. The buyback will help to support the stock price and is usually performed when management feels share price is favorable.

 

Source:

http://www.csulb.edu/~pammerma/fin382/screener/lynch.htm

 

Who would want to own a company named Computer Programs & Systems or Lumber Liquidators when you can buy Salesforce?

 

WRLD is another interesting company in a very profitable niche. Website looks like it's from 1999:

http://www.worldacceptance.com/

 

Nice figures:

http://financials.morningstar.com/ratios/r.html?t=WRLD&region=USA&culture=en-us

 

But dirty business:

http://www.valuewalk.com/2013/05/world-acceptance-short-citron/

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IDK about calling it a hidden champion, but one name that caught my eye recently is Ecolab.  Its an interesting stock with a history of earnings growth/compounding.  It may be a little expensive, but its another stock and industry to study.  Michael Larson owns a good chuck so it probably isn't "hidden" by any means, but something that I came across recently.

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