Plural Investing - XPEL: Competitive Advantages Greatly Misunderstood

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We invested in XPEL shares in 2020 between $11-$15 and have been shareholders since.XPEL is one of the highest quality businesses we have come across and its competitive advantages are generally ...

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XPEL: Competitive Advantages Greatly Misunderstood\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-02-07 23:55 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4668203-xpel-stock-competitive-advantages-greatly-misunderstood><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>We invested in XPEL shares in 2020 between $11-$15 and have been shareholders since.XPEL is one of the highest quality businesses we have come across and its competitive advantages are generally ...</p>\n\n<a href=\"https://seekingalpha.com/article/4668203-xpel-stock-competitive-advantages-greatly-misunderstood\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4574","symbol_name":"无人驾驶","start_time":0,"source_url":"https://seekingalpha.com/article/4668203-xpel-stock-competitive-advantages-greatly-misunderstood","article_id":"2409271271","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2409271271","pubTimestamp":1707321300,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"We invested in XPEL shares in 2020 between $11-$15 and have been shareholders since.XPEL is one of the highest quality businesses we have come across and its competitive advantages are generally great","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4574":"无人驾驶","BK4551":"寇图资本持仓","LU1551013425.SGD":"Allianz Income and Growth Cl AMg2 DIS H2-SGD","LU0348723411.USD":"ALLIANZ GLOBAL HI-TECH GROWTH \"A\" (USD) INC","BK4581":"高盛持仓","TSLL":"Direxion Daily TSLA Bull 2X Shares","BK4504":"桥水持仓","POAHY":"Porsche Automobile Holding SE","LU1720051108.HKD":"ALLIANZ GLOBAL ARTIFICIAL INTELLIGENCE \"AT\" (HKD) ACC","BK4099":"汽车制造商","BK4511":"特斯拉概念","LU0943347566.SGD":"安联收益及增长平衡基金AM H2-SGD","BK4124":"机动车零配件与设备","LU0823411888.USD":"法巴消费创新基金 Cap","LU1839511570.USD":"WELLS FARGO GLOBAL FACTOR ENHANCED EQUITY \"I\" (USD) ACC","LU1429558221.USD":"Natixis Loomis Sayles US Growth Equity RA USD","BK4548":"巴美列捷福持仓","LU1861559042.SGD":"日兴方舟颠覆性创新基金B SGD","LU1435385759.SGD":"Natixis Loomis Sayles US Growth Equity RA SGD-H","LU1551013342.USD":"Allianz Income and Growth Cl AMg2 DIS USD","IE00B1XK9C88.USD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A\" (USD) ACC","LU1914381329.SGD":"Allianz Best Styles Global Equity Cl ET Acc H2-SGD","LU0234572021.USD":"高盛美国核心股票组合Acc","BK4592":"伊斯兰概念","BK4109":"特种化学制品","TSLA":"特斯拉","XPEL":"XPEL Technologies Corp.","IE00BSNM7G36.USD":"NEUBERGER BERMAN SYSTEMATIC GLOBAL SUSTAINABLE VALUE \"A\" (USD) ACC","LU0820561909.HKD":"ALLIANZ INCOME AND GROWTH \"AM\" (HKD) INC","LU2249611893.SGD":"BNP PARIBAS ENERGY TRANSITION \"CRH\" (SGD) ACC","RIVN":"Rivian Automotive, Inc.","BK4534":"瑞士信贷持仓","LU0082616367.USD":"摩根大通美国科技A（dist）","BK4555":"新能源车","BK4533":"AQR资本管理(全球第二大对冲基金)","LU0053666078.USD":"摩根大通基金-美国股票A（离岸）美元","IE00BWXC8680.SGD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A5\" (SGD) ACC","LU0823414478.USD":"法巴经典能源转换基金","LU2357305700.SGD":"Allianz Global Artificial Intelligence ET H2-SGD","LU0097036916.USD":"贝莱德美国增长A2 USD","LU0234570918.USD":"高盛全球核心股票组合Acc Close","LU1852331112.SGD":"Blackrock World Technology Fund A2 SGD-H","BK4527":"明星科技股","PPG":"PPG工业","LU1720051017.SGD":"Allianz Global Artificial Intelligence AT Acc H2-SGD","BK4588":"碎股","LU0316494557.USD":"FRANKLIN GLOBAL FUNDAMENTAL STRATEGIES \"A\" ACC","BK4550":"红杉资本持仓","LU1861558580.USD":"日兴方舟颠覆性创新基金B","LU1548497426.USD":"安联环球人工智能AT Acc"},"translate_title":"多元投资——XPEL：竞争优势被大大误解","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"XPEL":1,"RIVN":1,"POAHY":1,"PPG":0.9,"TSLL":0.79,"TSLA":0.6},"content_text":"We invested in XPEL shares in 2020 between $11-$15 and have been shareholders since.XPEL is one of the highest quality businesses we have come across and its competitive advantages are generally greatly misunderstood.XPEL likely earned $2 in EPS in 2023 and we believe there is a long runway for growth.sergeyryzhov/iStock via Getty Images The following segment was excerpted from this fund letter.  XPEL, Inc. (NASDAQ:XPEL) XPEL is a global supplier of protection films. Like the film protecting the surface of your phone, XPEL's films can be applied to your car body, car window, and home or office window to protect it from scratches and chips or provide privacy and UV protection. The company is led by CEO Ryan Pape, who has high integrity, a strong customer focus, and who concentrates on long term value creation when allocating capital. Pape became CEO in 2010 and has steered the company from near bankruptcy to a $1.4bn valuation today. He owns shares worth $57mm and is aged 42, giving him a long runway and incentive to compound capital. We invested in XPEL shares in 2020 between $11-$15 and have been shareholders since, tending to reduce our position between $70-$100 and add to it between $40-50. The stock halved from the $80s to the low $40s late last year primarily because of short seller reports. We nearly tripled our share ownership as a result. The stock trades at $50 today and we think will be worth $100$150 in three years. We think XPEL is one of the highest quality businesses we have come across and that its competitive advantages are generally greatly misunderstood. We believe its advantages are its scale, customer captivity, excellent owner/operator, and culture. XPEL's primary product is paint protection film ('PPF'), which accounts for 57% of its revenues. We estimate the company has around 40% market share in the US, making it the largest player. XPEL does not manufacture PPF or sell it directly to car owners. Instead, the company sources films and coatings from a network of manufacturers and sells the finished product to thousands of aftermarket installers, retail and wholesale dealers, and auto OEMs like Porsche (OTCPK:POAHY) and Rivian (RIVN). Some investors argue this makes XPEL an unnecessary middleman. We think this is a mistaken belief based on the simplistic view that XPEL sells films, which is something that could be relatively easily replicated. While XPEL obviously sells films in a literal sense, our research suggests that installers switching to XPEL from other film suppliers see an increase in order volumes by around 20% - that leads to a substantial increase in the installer's profits and is the true product XPEL sells. As a result, there is often a wait list to become an XPEL-exclusive shop. Like a franchisor, XPEL manages the number of installers in a metro to ensure healthy system sales and profits. XPEL generates these advantages because its scale enables it to invest and develop the best product, range of products, service, software, and brand. It can also spend more on marketing than anyone else and typically ranks first on Google searches, bringing leads and revenues to installers at no incremental cost to those installers. Customers increasingly ask for the brand by name and installers increasingly depend on the company for their entire business. A growing number of industry participants now describe XPEL as \"the Xerox of PPF\" and for many shops XPEL provides all film, software, branding, and significant lead generation. The company is further moving ahead of competitors by rolling out CRM and ERP-like software that will enable installers to become increasingly sophisticated. This will boost system sales and deepen customer relationships even more. In fact, XPEL has such a strong relationship with its customers that at its 2023 Installer Day we noted how some installers ran to buy clothing from XPEL when the company debuted new merch. While XPEL's excellent and deep management is understood by many investors, we believe that its culture remains greatly underappreciated. The company's 'No Tomorrow' motto is not just a slogan - XPEL's employees and customers are often entrepreneurs who are self-starters, hard-working, business savvy, and impressive. Many of XPEL's employees have been installers themselves, and we believe it is this deep understanding and energetic culture that makes them winners. XPEL likely earned $2 in EPS in 2023 and we believe there is a long runway for growth given the low attach rate of PPF on new cars, which we estimate is 7-8% in the US and 1% internationally. With XPEL's expansion by geography, product, and channel, we expect the company to grow revenues by 15-20% p.a. for the next three years and expand margins to reach $4 in EPS. The company has also done a good job making bolt-on acquisitions, which we estimate will further increase EPS to $5. Assuming a 20-30x P/E for a high quality business with excellent management and strong balance sheet results in an intrinsic value of $100-$150 in three years, vs $50 today. Despite these qualities, the stock halved from the $80s to the low $40s late last year primarily because of short seller reports alleging that: (i) Tesla (TSLA) accounts for 25-35% of revenues that will soon disappear, and (ii) XPEL's largest supplier has developed a product with PPG that makes XPEL redundant. We disagree with both arguments. In October, Tesla announced that it will offer PPF installation at two service centers in California. This caused XPEL stock to decline around 20% as we believe investors extrapolated that Tesla would roll this out to service centers much more broadly, XPEL would lose all revenues for film installed onto Teslas, and that other OEMs may follow suit. While XPEL clarified that revenues associated with Teslas accounted for only 5% of sales, a short seller subsequently claimed based on speaking with 143 installers that the true number was 25-35%. That caused the stock to decline roughly another 20%. While data from 143 installers seems conclusive at first glance, we believe that XPEL's 5% claim is accurate and that Tesla's involvement is just as likely to be positive as it is negative. We believe the 5% claim for two reasons. First, XPEL has one of the highest integrity managements we have come across and its software tracks to the square-foot how much film its installers are cutting for Teslas and other vehicles. Secondly, the short seller's survey took results from the US aftermarket installers channel and extrapolated that to all company revenues. This needs to be substantially adjusted as: (i) PPF is only 57% of XPEL revenues, (ii) the US is 59% of revenues and Tesla market share is far lower internationally, (iii) XPEL also sells through the dealership and OEM channels where Tesla revenues are zero, and (iv) average order values for Teslas are likely to be lower. E.g. a Tesla Model 3 sold for $40k is far more likely to only have the front of the car wrapped for $2.5k than a six-figure Porsche or Ferrari, which may be entirely wrapped for $8k. When these and other factors such as the installers likely thought they were speaking to a Tesla owner and prospective client and so exaggerated the number of Teslas they have worked on, we believe that the short seller's data are consistent with XPEL's 5% claim. It is also important to understand that the biggest driver of increasing PPF adoption is greater awareness - were you aware of PPF before today? We can think of no better OEM to promote PPF than Tesla, and Tesla could conceivably increase PPF awareness by more than 5%. In fact, XPEL already supplies PPF to some auto OEMs like Porsche and Rivian and finds that aftermarket attach rates for those OEMs are higher than many other makes. This suggests that Porsche or Rivian growing awareness leads to incremental customers, even for the aftermarket. We pushed back against bulls when XPEL stock jumped in 2022 after the Rivian partnership was announced, and believe that investors can be overly focused on individual OEMs. The reality is that XPEL's films go on all vehicles and no single OEM is likely to be key. The second piece of news that caused XPEL's stock to fall was that its largest supplier Entrotech had formed a JV with paint and coatings company PPG. A short seller alleged that the JV had developed a new paint with protective qualities that makes XPEL's protective films redundant. We disagree. Our understanding is that Entrotech has manufactured colored paint films for over a decade and that PPG has been offering its own colored paint films since 2021. PPG is a major supplier of paints and protective coatings to auto OEMs and paint films have been one of those options for years. Entrotech was already using PPG's paint as a layer in its paint films and the JV formalizes what was already a close relationship. While the JV potentially gives Entrotech greater distribution, there has been no significant innovation that makes protective films redundant. It turns out that although Entrotech/PPG's colored paint films and XPEL's transparent paint protection films sound similar, there is a crucial difference. As the CEO of the JV said in this interview in August, 2023, \"paint films are a paint\"[1]. The CEO of Entrotech also states in this presentationin 2021 that \"we are paint, just in film form… conceived to replace spray paint\".[2] Paint film is a very thin film with paint on it. Although this makes it slightly more protective than the protective coatings that traditionally go on top of the paint on a vehicle, the CEOs of both the JV and Entrotech repeatedly emphasize that the film's main selling point is its environmental benefits. In fact, the CEO of the JV does not mention protective qualities at all in the interview linked above. The environmental benefits come because the film is wrapped onto a vehicle by hand rather than sprayed in a paint shop, meaning there is no need for spray guns, heating, rolling, or other equipment that comes with a carbon footprint. While paint films are environmentally friendly, they come with two major drawbacks that have limited their adoption - cost and time. OEMs have already invested hundreds of millions of dollars in many cases to build each paint shop. These paint shops are highly efficient, largely automated, and the largest can paint hundreds of thousands of vehicles per year. In contrast, wrapping a vehicle by hand with paint film is far more expensive per vehicle and usually takes more than a day. This significantly increases cost and slows the production process. As a result, paint films have seen limited adoption despite their environmental benefits. We do not think they significantly reduce XPEL's growth prospects.   Footnotes [1]See 3min 20s into interview: Coat it! | PCI Podcast | PCI Magazine-coat-it/play/149technology-driven-film-solutions. [2]See 1min 30s and 2min 30s into interview: AERO CEO Presentation for Honda Sustainability. Important Disclosures This material does not constitute an offer or solicitation to purchase an interest in Plural Partners Fund LP (the Fund\"), or any related vehicle. Any such offer will only be made via a confidential private placement memorandum. An investment in the Fund is speculative and is subject to a risk of loss, including a risk of loss of principal. There is no secondary market for interests in the Fund and none is expected to develop. No assurance can be given that the Fund will achieve its objective or that an investor will receive a return of all or part of its investment. This material is confidential and may not be distributed or reproduced in whole or in part without the express written consent of Plural Investing LLC (the \"Adviser\"). The performance results shown and discussed herein represents the performance of the Fund, a vehicle managed by the principal of the Adviser (the \"Principal\"). The Fund began trading on April 1, 2020. \"Gross\" results shown reflect the deduction of transaction costs actually incurred but are before management fees or performance allocation were incurred. \"Net\" results shown reflect the deduction of a 1.0% per annum management fee and 20.0% performance allocation. Results are compared to the performance of the MSCI World Net Return Index, or similar indexes (collectively, the \"Comparative Indexes\") for informational purposes only. Returns data for the HFRX Global Hedge Fund Index are from source: Hedge Fund Research, Inc. Hedge Fund Indices, Databases and Performance Reports | HFR®, © 2024 Hedge Fund Research, Inc. All rights reserved. Past performance is not necessarily indicative of future trading results. The Fund's investment program does not mirror the Comparative Indexes, and the volatility of the Fund's investment program may be materially different from the volatility of the Comparative Indexes. The securities or other instruments included in the Comparative Indexes are not necessarily included in the Fund's investment program and criteria for inclusion in the Comparative Indexes are different from those for investment by the Fund. The positions presented and discussed herein represent investments in the Fund as of the date listed. These positions are presented for informational purposes only to demonstrate a portfolio allocation of the Principal as of a recent date. Results of large \"contributors\" to the Fund's returns are also included for informational purposes only. No representation is being made that the Fund will or is likely to hold the same or equivalent positions or allocations in the future. Certain information contained in this presentation is derived from sources believed to be reliable. However, the Adviser does not guarantee the accuracy, completeness, or timeliness of such information and assumes no liability for any resulting damages. Due to the ever-changing nature of markets, the deductions, interrelationships, and conclusions drawn from historical data may not hold true in the future. This material contains certain forward-looking statements and projections regarding market trends, Fund allocation, and investment strategy. These projections are included for illustrative purposes only, are inherently speculative as they relate to future events, and may not be realized as described. These forward-looking statements will not necessarily be updated in the future. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.  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