When we study mature companies, we first aim to understand the persistence of returns. We want to grasp the predictability of the company’s earnings power. After laying out the 20-year financials on excel, one variable we focus on is gross profit.
A stable gross profit margin suggests the company is consistently adding value in its industry over time. It’s a cleaner measure of the underlying business fundamentals, excluding overhead efficiency, management salaries, leverage, taxes, etc.
Low gross margin variability is one of the main reasons we’re interested in B2B distributors like Watsco, POOL, Fastenal, Addtech, etc.
This document may not be reproduced, distributed, or transmitted in any form or by any means including resale of any part, unauthorised distribution to a third party or other electronic methods, without the prior written permission of IP 1 Ltd.
IP 1 Ltd, trading as In Practise (herein referred to as "IP") is a company registered in England and Wales and is not a registered investment advisor or broker-dealer, and is not licensed nor qualified to provide investment advice.
In Practise reserves all copyright, intellectual and other property rights in the Content. The information published in this transcript (“Content”) is for information purposes only and should not be used as the sole basis for making any investment decision. Information provided by IP is to be used as an educational tool and nothing in this Content shall be construed as an offer, recommendation or solicitation regarding any financial product, service or management of investments or securities.
© 2023 IP 1 Ltd. All rights reserved.
Subscribe to access hundreds of interviews and primary research