Key insights
- The author questions the existence of sustainable moats in industries like restaurants, retail, and construction, using Chipotle, Lululemon, and construction companies as examples. They argue that brand, low cost, and employee strength are weak moats. The author suggests that early growth stage combined with strong management might be a more relevant moat, implying potential overvaluation in mature companies lacking strong competitive advantages. This could lead to downward revisions in valuation multiples for these sectors.
I want to have a discussion about moats for particular industries and if they exist. I’d like start with restaurants. And as a case study I’d start with Chipotle.
The thing that throws me off is the more I think about restaurants the more I struggle to see a significant moat anywhere regardless of the company. Restaurants don’t have network effect, toll bridge, secrets - they can have brand but that is by far the weakest moat generally. They can also have low cost moat, but again that’s a relatively weak moat with so much competition and market saturation.
So how can Chipotle be considered value investing? Even if everything else about the company was great. To me depending on timing, Chipotle could have been more of a growth investing stock not value investing stock. When I looked at McDonalds, I can’t help but think they had first mover advantage into that type of fast food + global expansion and not really replicatable.
Another category of stocks is retail - and Lululemon. Fashion is fickle. Similar argument to above. There’s a growth/hype period, then the companies stock prices normalizes and eventually stagnates.
Another is some construction + material companies - examples: EXP, IESC, EME, FIX (I happen to work in construction) the moat imo is the strength of the employees who deliver a great product and management - that’s not really measurable though as an outsider).
Looking at companies like these has made me start to think there is another moat almost - which is a combo of a company early in growth with a strong runway + great management.
Looking forward to disagreements :)