Cloning This Cannibal
Our Next Buy is a serious cannibal.
This company has retired over 52% (!) of its shares since 2020!
Let’s tell you why I think this Pabrai-style bet is so interesting.
Why Cloning & Cannibals?
Mohnish Pabrai has a simple secret: Cloning.
He looks at what the smartest capital allocators are doing and clones their frameworks and high-conviction ideas.
One of his favorite types of stocks to buy?
Cannibals.
A cannibal is a company that uses its cash flow to aggressively buy back its own stock.
When a company eats itself by retiring shares, your percentage ownership of the business grows automatically
You don’t have to spend an extra penny to own a larger slice of the pie
If earnings remain flat, your Earnings Per Share (EPS) still goes up because there are fewer shares to go around
The same is true for your Dividends Per Share (DPS)
Our Next Buy is a serious cannibal.
It’s the market leader, with more than 60% market share.
It pays a 2%+ dividend, but the Payout Ratio is below 15%.
It uses the rest of its cash to buy back shares at low valuations
By investing in this firm, you are benefiting from a management team that understands the power of compounding via share count reduction.
Let’s look at the math:
In 2020, there were roughly 430 million shares outstanding.
That number is now under 200 million.
This management team has returned billions to shareholders and maintained a 30%+ Return on Equity (ROE).
When you combine a dominant market position with aggressive cannibalization at low valuations, you get a powerful compounding machine that flies under the radar of most retail investors.
Honestly, I might have missed it too, but I found it by reading the 13-F filing of a professional investor that I respect.
When I started researching the company, it became interesting very quickly.
The company is trading at a low single-digit P/E ratio while management keeps buying back shares.
Let’s find out which company I’m buying on Monday…
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One Dividend At A Time,
-TJ
Used sources
Interactive Brokers: Portfolio data and executing all transactions
Fiscal.ai: Financial data