Buy This Company Nobody Has Ever Heard Of And Hold It For 5 Yrs

2021年1月5日

So, if there's one lesson that I've learned in my time as a trader, it's that you should never discount growth - no matter where it's coming from, and no matter how it's happening. This is especially true nowadays in the era of ZIRP, where people will pay through the nose for increasing top line revenues. And, if it looks like those growing revenues are recurring, then so much the better. I happened to stumble across this name when doing DD on another company I'm watching (might get a post, probably not), but I immediately took a liking to the recent expansion in revenue and ebitda over the last two years which prompted some further study on my part. I think I've found a hidden gem.

PureCycle bills itself as the following: PureCycle designs, constructs, operates, and maintains water and wastewater systems in the Denver metropolitan area and Colorado Front Range in the United States. It operates in two segments, Wholesale Water and Wastewater Services, and Land Development. The company engages in the wholesale water production, storage, treatment, and distribution systems; wastewater collection and treatment systems; development of master planned community; and oil and gas leasing business. It serves domestic, commercial, and industrial customers in the Denver metropolitan region.

If you didn't feel like reading all of that, it's essentially a water utility company based in Denver. What's so exciting about that?

Well, here's the rub.

Essentially, right now PCYO is being valued as a real estate / water rights company due to the fact that the majority of the firm's assets are in water rights and some land that it scooped up in the wake of the 2008 financial crisis. Water rights companies are generally hated by the market, because they produce lumpy revenue (sales) and own an extremely illiquid asset. However, PCYO has begun to work it's way out of this situation by partnering with developers to develop the highly valuable parcel of land they own, so they can create their own liquidity, aka paying utility customers. They're also branching out and working to develop a recurring water utility business within the surrounding area. So the reality right now in this name is that it's being looked at one way by the market, but it's actually been silently turning into a water utility company with *extremely* high profit margins in a growing, water scarce Denver market. This company should continue to grow steadily and at an incredible clip (70% top line prev 3 yr CAGR) while also growing into its proper valuation class. If you weren't aware, water utilities tend to trade at expensive valuations, which is yet another consideration for the bull case in this name.

I'm also bullish on the growth of Denver for a whole host of reasons, not the least of which is that it's become a destination for tech workers fleeing the pricey Bay Area and also for metropolitan East Coasters looking for more expansive outdoor space (1) - but suffice it to say that this company also constitutes a concentrated bull bet on Denver, which I like.

I did some back-of-the-napkin math, and if this company continues to execute on it's plans to expand and grow, this company is CONSERVATIVELY easily worth 24ish, maybe $30 if the stock breaks out implying a 100%+ upside. I'm looking to slowly accumulate shares here (maybe selling some premium on it) while it continues to rest and build momentum towards it's high near 14.50. By the time this company breaks out, you might chasing it higher, wishing you got in sooner.

-Cheers!

(1) seekingalpha.com/article/4396858-pure-cycle-water-utility-player-creating-own-market