But the firm has long been one of our favorite mid-cap growth stories, with an easy-to-understand and long-lasting runway of growth. SiteOne is the largest and only national wholesale distributor of landscape supplies, with five times the share of the next largest outfit, operating 590 branches with more than 130,000 individual products.
Sure, the industry itself is a slow grower, but here’s where things get exciting. The industry is very highly fragmented; even SiteOne’s dominant position lands it just 13% of the sector).
The firm has embarked on a multi-year roll-up effort, snatching up an average of nine outfits every year, most of which add exposure either geographically or product-wise to its current portfolio. (It only offers a full product line in 21% of the markets it operates in.)
So far this year, SiteOne has swallowed up six firms with more than $90 million in annual revenue and 23 branches, and it’ll likely grab another couple before 2022 arrives.
Of course, having the scale and discipline to execute the plan is difficult, but the company’s management has proven deft at finding good buys that lead to synergies (including purchasing synergies) and bolster the product line.
As for the numbers, they’re great, with 22% organic growth in Q2 (admittedly vs. easy comparisons) and EBITDA is likely to come in around $350 million this year (up from an original projection of $310 million). Long term, as long as the firm can access capital, there’s no reason it can’t grow many-fold from here. The Q3 report is due November 3.
Technically, SITE had a stairstep advance for much of last year and early this year, finally peaking in early May when earnings didn’t live up to expectations. But while the initial selling was fierce, what followed was a normal-looking consolidation, with support appearing at the 40-week line a few times.
After rallying toward the May peak, the stock saw a couple months of sideways action. Last week brought a breakout, though volume was just OK and earnings are out soon (expected on November 3rd). We’ll set our buy range down a bit if you want to nibble ahead of earnings.
