A surprising tenbagger

Every investor invests from their own starting point in the stocks that best suit their nerves. Many of us, however, would prefer to invest in companies that are headed straight for the top. That's why the investment debate often turns to the latest star stocks. If you can buy such stocks cheaply, good for you. 

But you can also get those fat returns from duller and more stable companies. In X, I stumbled across an American gas station chain called Murphy USA. The company's ticker symbol is amusingly $MUSA. The company's revenue has developed modestly, from about $17 billion to a couple of tens of billions in ten years. The company operates gas stations in a constant search for efficiency gains, which doesn't sound very sexy. Yet the business is quite profitable, with a return on investment (i.e., how much interest is earned on the owners' money spent on the operational business) in the 20-30% range.

Although the business smells like gasoline, the stock has been anything but dull: it has risen about tenfold in ten years, or returned over 20% per annum.

How?

The company seems to have been slowly but surely increasing its profits. Over the past five years, EBITDA has more than doubled.

However, a major driver of earnings growth, and therefore the share price, has been the repayment of capital to shareholders in the form of share buybacks. The company has spent about half of its cash flow on share repurchases. In ten years, the share capital has been reduced by about 55%. The company has been able to quietly buy back shares at a reasonable valuation level, with P/E ratios hovering around 17 over the past 10 years. The low valuation allows the purchase and annulment of a larger number of shares for the same amount of money.

While many investors are hunting for the AI boom winners, perhaps it might be worth asking yourself the next time you visit a gas station: what hidden winners can be found in boring industries?