TIP842: Comfort Systems USA (FIX): The Five-Bagger We Passed On w/ Kyle Grieve & Shawn O'Malley

**SPEAKER_1** (0:00)
You're listening to TIP.

**Kyle Grieve** (0:03)
Welcome back to The Investor's Podcast. Today's episode is number 842, and we're doing something a little different today, going back to revisit a stock that Shawn actually pitched a while back in Comfort Systems. So when Shawn covered it, his model assigned a fair value of around $320 per share, and he ultimately passed, preferring to wait for a better entry point.

**Shawn O'Malley** (0:22)
I remembered vividly, and yeah, this is gonna be a painful episode for me because we really, or I really, missed out on quite the opportunity. My valuation could not have been more off.

**Kyle Grieve** (0:33)
Yeah, but you know, so the business has kept growing at this just incredible clip, largely riding this data center and AI build out. And the stock today is now sitting at five times its price when, unfortunately, Shawn, you first looked at it just miles past the top of even the most bullish view that you possibly could have modeled for.

**Shawn O'Malley** (0:50)
I'm ready for it. Lay into me here because it was a mistake. And, you know, I'll leave it up to the audience to decide how big of a mistake they think it was that we made in passing on this one. Or if there were some factors here that were simply well beyond our field of view that changed as in is our investment process flawed or is this just part of the reality of having an investment process where you end up excluding things that other people will make a lot of money on and that's okay. But it also helps save you from making big mistakes or at least that's the idea. So let's see if this incredible stock run is random luck or if we simply missed the forest for the trees on this one.

**Kyle Grieve** (1:30)
Let's find out.

**SPEAKER_1** (1:34)
Since 2014, with more than 200 million downloads, we have interviewed the world's best investors, studied deeply the principles of value investing, and uncovered many compelling investment opportunities.
We focus on understanding businesses and intrinsic value, investing accordingly, and sharing everything we learn with you. This show is not investment advice. It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. Now for your hosts, Shawn O'Malley and Kyle Grieve.

**Kyle Grieve** (2:21)
Every so often on the show, we think going back and probably just grading our initial pitches is just a really, really good idea. Not only to highlight some of our winners, but also to highlight our losers. And not only to look at businesses where we maybe own them inside the Intrinsic Valley portfolio, but also to look at businesses where we may have made a mistake of omission simply by passing on them, that turned out to be just an incredible, incredible investment. We are, after all, achieving some pretty good returns, but I think I speak for both Shawn and Daniel when I say the process is something that we weigh very, very heavily. This is why we think it's important to look at our previous decision-making, to try and pinpoint whether we made a mistake, or if our decision-making was sound, even if the outcome wasn't exactly where we wanted it to be. So today's episode, we're going to cover a business that Shawn covered a while back, Comfort Systems USA. For anyone who didn't listen to the original pitch, it's basically a mechanical, electrical, and plumbing installation and service provider based out of Houston.
While management doesn't like the label Sierra Acquire, I think it's probably the best label that we can use to help understand exactly what they do.

**Shawn O'Malley** (3:20)
Yeah, I think that's fair. Part of the reason I like the business was that it does have this well-established playbook with over $10 billion in revenue and over 23,000 employees. So in terms of size, it is a pretty big business. But the real story has been their ability to continue compounding, even at a large cap size. And so for a business to have a market cap of over $60 billion, while compounding revenue at 13% a year and earnings per share at 22% a year for the last two decades, that is really something special.

**Kyle Grieve** (3:53)
But what I found even more incredible is that most of the time, when you look at the growth rates of a business with maybe a similar market cap to the size of Comfort, growth tends to be plateaued or is even declining. When I look at the past 10 years of Comfort Systems, revenue growth has actually increased to 21% while earnings per share has gone up to 37%.