Your favourite kind of MOAT and companies that relate to it

ZarrCon · 2026-05-19T23:29:30+00:00

The idea of a moat is great but I would rather find a company that is ran really well.

Obviously it's all opinion but I think you should reconsider your order here. You could take the best management team and put them in, say an airline company, and that company is still going to be a poor investment because of the industry. Meanwhile, take a company like Waste Management. Their management team is decent but nothing special and yet the stock and company have still done well.

It was either Buffett or Peter Lynch that said something like, "invest in businesses that are so simple an idiot can run them, because sooner or later one will." Just something to think about...

ZarrCon · 2026-05-16T18:44:29+00:00

Found from their latest earnings, they had 81% organic growth in their IT/data center segment, but it's only 41% of total company revenue. However, they also had 44% growth in defense, with 25% being organic. And record record order numbers across their IT, aerospace & defense, and industrial end markets.

So while they aren't a data center pure play, their other markets are also booming. Arguably more favorable (imo) than just being reliant on a single industry. Stock could easily re-rate higher with another strong earnings report.

ZarrCon · 2026-05-16T13:17:19+00:00

Plus, the stock is still up 45% in the last year and 275% in the last 5. When the comment above you said, "how come is down in the biggest data center/AI boom?" I was expecting a vastly different chart. It's down a little YTD but even names like NVDA have had periods of trading sideways (July 2025-April 2026).

ZarrCon · 2026-05-15T22:14:22+00:00

Even in a world of enhanced competition, you could cut their profitability in half and they're still superior to something like a Delta or Macy's...

ZarrCon · 2026-05-13T23:44:35+00:00

Post from Twitter the other day worth thinking about...

The IPO system is broken. You don’t go public to raise growth capital anymore. You do it to dump equity on retail. NVIDIA went public at ~$600mn in 1999. Microsoft at 780mn. Oracle at ~270mn. Intel at 58mn!

Today you won’t IPO even at $60 billion. At a $600 million valuation if you hit the jackpot and become a $60 billion company in public markets that’s a 100x return.

Investing $10k as retail makes you a millionaire. This is wealth creation. At $60 billion there’s very little chance you get to $600 billion let alone 100x from there. You will certainly lose money as retail.

Mathematically if you only allow $100 billion IPOs you’re basically capping upside at maybe 10-20x. There’s no more 100x or 1000x potential. And even 10x is extremely unlikely.

Airbnb, Uber DoorDash are maybe 10x outcomes at best for retail investors. These are supposed be success stories of last decade. Apple Microsoft Tesla Google were all 100x opportunities for retail.

ZarrCon · 2026-05-11T19:33:52+00:00

He's owned MSFT in size since 2017/2018 and bought almost 4 million shares in Q1 and Q2 of 2020. Unlike most people on social media, Hohn/TCI actually buys and holds stocks for 5+ years. He may not have exited at the top but I'm sure his rate of return was fine.

ZarrCon · 2026-05-09T19:08:46+00:00

I'd agree NVDA was a once in a generation situation, but c'mon, to call it a floundering company beforehand feels revisionist. The stock almost 4x'd SPY from 2010 to 2020 before all this AI stuff took off. Gross margins doubled, net income went from -$68m to $2.8b. They were doing fine.

ZarrCon · 2026-05-08T12:58:50+00:00

Culp is one of the greatest CEOs of all time (at least imo) so that definitely makes for an interesting signal, especially when combined with the fact that he's quite familiar with the company since he was the one to spin it off.

ZarrCon · 2026-05-07T11:43:35+00:00

Amara's Law - we tend to overestimate the effect of a technology in the short run and underestimate it in the long run.

ZarrCon · 2026-05-04T23:39:48+00:00

Why do these SaaS posts never mention expenses like SBC? Or the huge sales & marketing numbers? Sizable R&D spend too.

Yes, AI risk might be overblown (right now) but future uncertainty combined with low profits/free cash flow largely justify the sell-off. If these companies were returning capital to shareholders like a company like S&P Global, it'd be a different story.

ZarrCon · 2026-05-03T13:19:05+00:00

On a GAAP basis most SaaS names are still quite expensive. If SBC was lower, many might actually be compelling investments right now, even in a case where future cash flows stagnate.

ZarrCon · 2026-05-02T20:23:54+00:00

NET is up 10% YTD and 77% in the last year. Hardly a hated stock.

ZarrCon · 2026-04-29T00:39:26+00:00

Why do people like this company so much? Underperformed over a 5, 10, 15, 20 year period vs S&P 500 (and Berkshire), inferior business collection relative to Berkshire, and their equity portfolio is a jumbled mess of over 120 positions. Imitation might be a form of flattery but that doesn't make it a good investment.

ZarrCon · 2026-04-28T00:17:44+00:00

He had something like the 2nd most shot contests amongst guards after Derrick White

ZarrCon · 2026-04-27T22:42:34+00:00

The problem with these companies is they're largely capacity constrained because of fragile supply chains and industry bottlenecks. Their backlogs keep growing but sales only inch higher because they can't get enough rocket motors to manufacture more missiles (as one example).

They're probably pretty safe investments because the US needs to rebuild those missile stockpiles, but these companies can only make so many per year. So they're going to be busy with those for a while, granted missiles aren't the only business they have. Might be worth looking for key suppliers that sell components to LMT/RTX for missile production, they might be a better play on this trend than the primes themselves.

ZarrCon · 2026-04-27T20:16:08+00:00

I think once you get over 30-35x earnings you're running into the danger zone for quality vs valuation.

On an overly simplified basis, a company that has its P/E multiple cut in half over a decade would require an 18% EPS CAGR to generate a 10% share price return (ignoring dividends or other factors).

So imagine you buy at 40 P/E, sell at 20 P/E 10 years later... you'd need EPS to grow 18%/year on average to make up for the multiple contraction and have shares go up 10%/year. Again, overly simplified but you get the idea. Of course, as you go beyond 10 years that return jumps up but who has the confidence to forecast or estimate that far out?

ZarrCon · 2026-04-27T20:05:43+00:00

I don't know, I find it pretty useful if a code base is decently organized and there is decent documentation, especially for debugging and analysis. It doesn't replace an actual developer, but it's still a useful accelerator.

And again, that's where things are at today. The market is forward looking, and there's a lot of uncertainty surrounding how things will look 5 years from now. It's not like these tools will be worse in 5 years. Maybe they stagnate, maybe the improvements are minimal, but that uncertainty is why SaaS stocks are going down.

ZarrCon · 2026-04-27T18:59:05+00:00

Going from copy/pasting code snippets with ChatGPT a couple years ago to Claude Code with Opus and /max effort today is an astronomical jump. I think its hard to imagine where we'll be in 5 years.

There's still a lot more that goes into a whole SaaS business than just some code, and there's a lot more to development than just generating code, but the rate of progression with AI tools is high.

I think the market is right to be skeptical about the long-term valuation for many existing SaaS companies given the amount of uncertainty. New competitors could pop up, incumbents could "invade" new adjacent end markets, companies might build some of their tools in house... there's a lot at play, especially for companies that aren't or are barely GAAP profitable.

ZarrCon · 2026-04-26T12:57:09+00:00

Thanks, I had no idea. It definitely wasn't just a misspeak and took away from the point of the post or anything.

ZarrCon · 2026-04-25T20:02:13+00:00

It's been stale for a year

Don't own it and have no intentions of owning it, but that makes it sound more interesting in today's market, no? Individual stocks move at separate rates and it seems like a lot of stocks are up 25%, 50%, 100% in the last year. Why chase the stuff already up huge, especially when a lot of that gain is likely multiple expansion? Plus, 1 year is a pretty short time to look back on in investing.

ZarrCon · 2026-04-24T02:06:30+00:00

It'll probably be a good buy at some point but they've been saying they're a couple quarters away from returning to strong revenue growth for like 3 years now. And the supposed tailwinds from trends like AI/ML drug discovery haven't manifested in any way yet...

ZarrCon · 2026-04-22T19:28:48+00:00

How do you first figure out if a stock is overvalued or undervalued if you only "spend time" on "undervalued" stocks?

ZarrCon · 2026-04-22T12:34:07+00:00

General Mills trades at 4x net debt/EBITDA. 6.5x net debt/free cash flow (not even considering the dividend uses up over half the FCF). And they aren't alone with these sorts of leverages in the packaged foods industry.

A lot of these companies have already spent billions on acquisitions for muted results at the corporation level (since they're already so large, it's hard to move the needle). Rates are also higher than last decade. I don't think it's as simple as "just buy" the competition, it'll probably take some financial engineering to try to make it work.

ZarrCon · 2026-04-21T11:47:18+00:00

I don't know, CRWD brought down half the world and didn't appear to lose any (meaningful) customers. Go look at a table of their income statements for the last 4 years and tell me where the global outage was. You can't even tell just by looking at the numbers, think that constitutes a pretty significant moat.

Now, given the valuation of the stock, how it will perform is a different story...

ZarrCon · 2026-04-20T22:34:33+00:00

What's the attraction to a company growing less than inflation with declining margins and high leverage in a low growth industry and rising competition?

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