OT Argan a good fit for BRK

Certain businesses within the engineering, procurement, and construction (EPC) industry share many similar characteristics to the insurance industry. Many firms have little capital requirements, produce float, and have an unclear cost of revenue. Not all of these characteristics are positive, but they do make for an interesting comparison to the industry that Warren Buffett built his fortune on.

Based on the $38.19 per share stock price at the end of May 18th, Argan has a market value of $565.8 million. This would leave goodwill of just $240.2 million if the company could be acquired at this valuation. Over the last 10 years, the firm has averaged net income of $34.4 million. This would equate to a yield of 14.3% based on the $240.2 million of goodwill in this hypothetical transaction.

Argan could start retaining 100% of its earnings, diversify its earning power through acquisitions when opportunities arise, and invest an amount in stocks that is equal to its shareholders’ equity figure. If a project experienced cost overruns, the corporation would have excess capital at the parent company level, and eventually could have profits rolling in from businesses outside of the EPC industry. Not only would Argan become a safer corporation, but it would turn into a compounding machine like Berkshire Hathaway.

https://mcdinvestments.substack.com/p/another-industry-on-wh…

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