Quality compounders are flywheels. Said differently, they’re businesses that generate heaps of profits and consistently reinvest them to produce even more profits. Rinse and repeat.
Companies with these characteristics are our definition of a “blue-chip”. On that note, here are three quality compounders that deserve a spot on your list.
Market Cap: $18.3 billion
Created with the idea of virtually replacing paper catalogues, Pinterest (NYSE: PINS) is an online image and social discovery platform.
Why Will PINS Outperform?
Monthly Active Users have increased by an average of 11.2% annually, giving it the potential for margin-accretive growth if it can develop valuable complementary products and features
Healthy EBITDA margin of 28.3% shows it’s a well-run company with efficient processes, and its profits increased over the last few years as it scaled
Strong free cash flow margin of 27.4% enables it to reinvest or return capital consistently, and its rising cash conversion increases its margin of safety
Pinterest is trading at $27.17 per share, or 13.4x forward EV/EBITDA. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
Market Cap: $33.62 billion
Formed through the merger of 12 companies, Comfort Systems (NYSE:FIX) provides mechanical and electrical contracting services.
Why Is FIX a Good Business?
Average backlog growth of 33.6% over the past two years shows it has a steady sales pipeline that will drive future orders
Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
Improving returns on capital reflect management’s ability to monetize investments
Comfort Systems’s stock price of $961.29 implies a valuation ratio of 32.3x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
Market Cap: $324.1 billion
One of the original 12 companies on the Dow Jones Industrial Average, General Electric (NYSE:GE) is a multinational conglomerate providing technologies for various sectors including aviation, power, renewable energy, and healthcare.
Why Are We Backing GE?
Annual revenue growth of 15.2% over the last two years was superb and indicates its market share increased during this cycle
Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
Returns on capital are growing as management capitalizes on its market opportunities
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