Fantastic Business at a Fair Price
In this series, I will break down my buy price or “buy area” of each of the companies on my watchlist. This will provide an insight into how I think about valuation, and whether or not the businesses on my watchlist are attractively priced currently.
These businesses have done very well over the last 5 and 10-year period, but as we know, a fantastic business at a horrible price can be a horrible investment. Therefore, we must always consider what price we get these fantastic businesses at to ensure that our returns are fantastic.
Let’s break it down.
OTC Markets $OTCM
FCF 5-Year CAGR: 10.43%
Gross Margin 91.6%
Interest coverage +100x
Operating Margin 31.5%
ROCE 5-Year 79%
EPS 5-Year CAGR 18.3%
CAGR since inception 26.2%
My buy price
I would consider OTCM below $50 per share (Currently $57). The business has stagnated after the pandemic boom (When everyone and their mother was trading stocks with their government money). I like the business, and I believe it has plenty of optionality to grow further, it is founder-led and has shown its operational excellence in the past. However, the future projections for OTCM are only that it will grow at ~5% for the next few years and ~9% for the long term. This is a bit at the low end and ideally makes me want a better entry price.
I’m waiting for a better opportunity to take a position in OTCM. I’d also like to see the business returning to decent growth.
My input is $2.3 of FCF per share and the growth projections are shown in dark blue to the right in the model below:
