This is what I find interesting about this company. For starters, management does an excellent job presenting the relevant numbers on their financials so you don't have to dig deep for them. The second part that is unique is their acquisition strategy. They have 16 corporate owned locations and 14 Franchise locations which are all based in the US. When the business owners of these franchise locations wish to retire or plan their exit strategy, Redishred comes in and makes them an offer and acquires the business. They have control over what they're buying and know the business inside and out. Each acquisition is a rinse and repeat business model without the skeletons in the closet that occur when companies acquire other companies. They know what they are buying.
When paper prices are high, which is very much cyclical, the operating profit margins are higher and the company is very profitable on its own. On the flip side, when paper prices are low, margins decrease and the company is likely to acquire more franchise locations on the cheap. This increases the profitability in future years when paper prices eventually recover.
"During the trough cycle of paper prices, independent operators feel equal pain of depressed cash flows originating from the lack thereof pricing for recycled paper. This allows Redishred to accelerate its consolidation of route territories as valuations normalize and sellers are more realistic about what prices they’ll sell their business. In a way, Redishred has a counterbalance to the cyclical exposure of recycled paper exposure. The operations benefit when paper prices are high, and capital allocation benefits when paper prices are low.
Higher paper prices equal higher profit margins. Lower paper prices equal faster growth of territory consolidation. The company has already made acquisitions in both New Jersey and Baltimore this year, and it would be surprising if at least one more acquisition wasn’t completed by year-end."
https://www.mcjcapitalpartners.com/q3-2023-update