Strategising for Success: How Consumer Durables Can Help Generate Exponential Alpha
As investors, it’s important to always be on the lookout for opportunities to generate strong returns for our shareholders.
Recently, in our Sector Advantage smallcase, we have increased exposure to consumer durables to 15%, which means that despite people fearing a recession and pushing demand into the future, we still feel confident about investing here because of pent-up demand coming through eventually along with strong earnings growth & margin expansion – all contributing factors towards higher multiples fetching exponential alpha returns!
Case Study
One example of this kind of opportunity is Supreme Industries, which we added at the start of Jan ’23, a recent consumer durable investment that declared results over the past week. Supreme Industries has maintained operating margins of 16.2% over the past 10 years. But in the past year due to stress on the economy, their margins dipped to 7% in Sept and were back at 12% for December quarter. We believe that the margins will catch up to 16% by the next quarter along with increasing revenue.
Revenue growth + margins expansion + increase in multiples is the holy grail to generating exponential alpha. By identifying companies that have temporarily been affected by economic stress but have the potential to rebound in the future, we can generate strong returns for our shareholders.
Our analysis of Supreme Industries, along with the company’s historical performance, gives us confidence that this company will reward our shareholders with exponential alpha.
In summary, as investors, it’s important to stay vigilant and always be on the lookout for opportunities to generate strong returns. The consumer durables companies that have been temporarily affected by economic stress but have the potential to rebound, are a great opportunity to generate exponential alpha for our shareholders. The example of Supreme Industries is a demonstration of the potential of such investments.
Check out the Sector Advantage smallcase
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