SiteOne Landscape Supply (SITE)

Summary	Score	MOS	Share Price	Sticker Price
On Sale	17/20	70%	$185	$640

SiteOne is a wholesale distributor of landscape supply founded in 2001 with 511 locations in the United States and Canada. Their customers are primarily landscape professionals who specialize in the design, installation, and maintenance of residential and commercial landscapes. They maintain about 100,000 products in their catalog including outdoor lighting, fertilizer, seed, herbicides, pesticides, landscaping tools, trees, flowers, and shrubs.

This article from Yahoo Finance talks about the impressive ROE (Return on Equity) which is similar to Tykr’s ROIC (Return on Invested Capital). In other words, ROE is saying that SiteOne is highly profitable in relation to shareholder equity which is a great sign.

This article from Yahoo Finance talks about SiteOne’s impressive trailing twelve-month EPS increase of 49%. This is a key reason why the sticker price is $640 making the MOS 70%.

Is SiteOne stock a good buy?

This article from Yahoo Finance mentions the next SiteOne earnings date is May 5th, 2021. Earnings dates are the points in time where share prices make the biggest moves. If SiteOne exceeds EPS earnings expectations, there is a high probability the share price will increase. If SiteOne falls short of EPS earnings expectations, there is a high probability the share price will decrease. Always pay close attention to earnings dates.

This article from businesswire.com says the estimated CAGR (Compounded Annual Growth Rate) of the US landscaping industry is expected to be 4.5% through 2025. The landscaping industry in the US is currently $105B in 2021 which means it will be $128B in 2025.

SiteOne has experienced a 118% increase in the share price over the last year. Due to Covid-19, people are traveling less and have decided to spend more on home and landscaping improvements. This article from storebrands.com says that 33% of homeowners have spent more on home improvements during the pandemic than before and 20% say they plan on spending more on home improvements over the coming year.

Based on my homework over the last year, I’ve seen home improvement-related businesses thrive due to covid but there is one challenge with this industry and that’s the shortage of trade workers. Due to the mass exit of baby boomers from the workforce, Gen X, Millennials, and Gen Z are not backfilling these positions. This article from businesswire.com says that we are facing a shortage of plumbers, roofers, carpenters, and electricians.

This article from nipgroup.com says that 92% of green industry businesses including landscaping, lawn care, irrigation, and snow removal are facing a significant applicant shortage.

If you know anyone who’s looking for work or complaining about being unemployed, they certainly aren’t looking very hard to remedy their situation. Trade jobs have a relatively low barrier to entry as you don’t need a 4-year degree along with expensive tuition to find employment. Unfortunately, the majority of Gen X, Millennials, and Gen X were convinced to attend college to find more white-collar office jobs only having to graduate with student loans, mediocre wages, and nominal annual pay increases. Times have changed and we need to shift our focus on trade jobs as these jobs are not easily automated as opposed to office jobs which are being automated by technology as we speak.

Think about it. Can you automate the skills of landscaper, plumber, carpenter, or electrician? You would need a physical robot to operate tools and make intuitive problem-solving decisions. Not only is the AI (artificial intelligence) far out of reach but you would also have to manufacture a physical robot to perform the job. It’s highly unlikely these jobs will be automated by tech in the near future. As for office jobs, the implementation of RPA (Robot Process Automation) is removing white-collar jobs as we speak. Data entry and repetitive (and boring) office jobs are being replaced by software.

Although the landscaping industry services are in high demand, the ability to meet the demand is not chocked by supply chain or products, it’s held up by a lack of workers. This may impact the moat and we’ll get to that in a moment.

I did some homework and SiteOne doesn’t have any major publicly traded competitors. Although we can’t compare these competitors within Tykr here is a list of competitors and their annual revenues in 2019. This will provide an idea of the market share.

• SiteOne:  $2.3B
• TruGreen:  $2.4B
• Davey Tree Expert Company:  $1.1B
• Bartlett Tree Experts:  $326M
• Yellowstone Landscape:  $268M

TrueGreen is really the only major threat at the moment.

Now let’s take a look at the 4 M’s.

The shortage of landscape workers may impact the revenue that may be generated by SiteOne and its competitors. If I were SiteOne I would start an internship program with high school students right away! Get these kids acclimated to a career that is in high demand and doesn’t require student debt. Their human resources initiatives should be completely focused on finding young motivated talent. The businesses in the space that capitalize on human resources management will win. I took a look at the Cash Flow Statement and SiteOne currently has $211M of Free Cash available. They are in a great spot to recruit and train talent.

Doug Black has served as CEO since 2014. Prior to SiteOne he worked at Oldcastle, Inc a building materials manufacture and distributor. Some of the roles he served there include COO, CEO of Architectural products, and CEO of Materials.  Prior to Oldcastle, Inc he worked at McKinsey and Company, a top-tier management consulting firm. At McKinsey he worked in strategy and sales. Prior to McKinsey he was a US Army Engineer Officer. Overall, Black is a perfect fit for CEO.  I like to see leaders who start out in consulting or investment banking. Those jobs are typically high stress but you learn a lot about running large businesses at a young age.

Now let’s take a look at the financials. A good value investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.

Here are the last four years.

Revenue (Found on the Income Statement)

2017	2018	2019	2020
$1.8B	$2.1B	$2.3B	$2.7B

Revenue has consistently increased.

Net Income (Found on the Income Statement)

2017	2018	2019	2020
$54M	$73M	$77M	$121M

Net Income has significantly increased in 2020.

EPS (Found on the Income Statement)

2017	2018	2019	2020
1.37	1.83	1.89	2.81

EPS has significantly increased in 2020.

Free Cash Flow (Found on the Cash Flow Statement)

2017	2018	2019	2020
$300K	$58M	$109M	$211M

The Free Cash Flow has increased consistently.

Total Assets (Found on the Balance Sheet)

2017	2018	2019	2020
$910M	$1.1B	$1.4B	$1.6B

The Total Assets have increased consistently.

Total Liabilities (Found on the Balance Sheet)

2017	2018	2019	2020
$687M	$866M	$1B	$900M

The Total Liabilities have decreased slightly in 2020 which is good.

Total Debt (Found on the Balance Sheet)

2017	2018	2019	2020
$463M	$568M	$542M	$11M

The Total Debt has decreased substantially in 2020. In thriving years, I like to see leadership pay off corporate debt.  Very smart.

Total Equity (Found on the Balance Sheet)

2017	2018	2019	2020
$212M	$301M	$393M	$795M

The Total Equity has increased substantially in 2020. This is a great sign as well.

With a score of 17/20 and a MOS of 70%, the business financials are fantastic. Even as I manually walked through the financial statements, I was very impressed with the year-over-year growth on most of the line items. The meaning checks out along with the management. The small challenge to pay attention to is the moat. Companies like SiteOne need to make landscaping sexy and exciting! That’s how you attract new talent into this industry. If they can do that, SiteOne will be well poised for further success.

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