One of my working theories is that some of the most durable businesses make good-but-not-great returns. Returns have to be above one’s cost of capital, but generating excessively high rates of return engenders competition.
Basically, you want to be good enough to make money without anyone noticing.
I’m opening with this statement because a couple of companies going public soon are prime examples of what happens when the returns are too good: Competitors come out of the woodwork.
It doesn’t take a stretch of the imagination to see why Legence (NASDAQ: LGN) and Black Rock Coffee Bar (NASDAQ: BRCB) are opting to go public. One is benefitting immensely from an artificial intelligence side bet, while the other looks an awful lot like a richly valued stock on the market today. It’s not a stretch of the imagination to see why both want to go public.
Let’s dig in
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