MYRG Group is an electrical construction provider holding company operating in Canada and the United States that serves the electric utility infrastructure and commercial & industrial construction markets. They specialize in design, engineering, procurement, construction, upgrades, maintenance, and repair services, with a particular focus on construction.

They operate through two business segments:

• Transmission and Distribution, servicing electric transmission and distribution networks, and substation facilities

• Commercial and Industrial, providing electrical contracting services for commercial and industrial clients

Each segment serves different customers:

• T&D: big players in the electric utility industry, including investor-owned utilities, cooperatives, private developers, government-funded utilities, independent power producers, independent transmission companies, industrial facility owners, and other contractors

• C&I: general contractors, commercial and industrial facility owners, governmental agencies, and developers

How does this business actually make money?

Jobs are awarded through a bidding process. For larger and more complicated jobs, financial strength and clients’ confidence that MYRG will remain solvent during the job are increasingly important. The company’s strong financials and low debt levels go a long way toward that and allow the company to obtain adequate surety bonds that smaller companies don’t have access to.

Competitive Advantages

I’ve identified two advantages:

1. Their financial strength. MYRG has low debt levels and recently significantly more free cash flow. This allows them to bid on more complicated and larger jobs that smaller contractors don’t have access to. They’re also able to acquire larger surety bonds, which are paramount for securing large projects.

2. They have a centralized fleet management group. This is an internal group responsible for dispatching trucks and equipment to different subsidiaries. This allows them to save on rental costs, improve asset utilization, and eliminate waste.

Although these advantages are real, financial strength and benefits of scale can be copied by successful competitors.

Industry Tailwind

The specialized electrical contracting business is a cyclical industry. Data center construction, grid spending, and transmission investment are all increasing, and the rising tide seems to be raising all boats. After researching MYRG’s competitors, I found that they all showed very similar improvements over the same timeline, and because of that, I believe these improvements are not company-specific and are a result of increased demand across the overall industry.

MYRG's ROIC before 2020 was never higher than 9%. Since then, it’s averaged 15% and has reached as high as 19%.

IES Holdings is a similar story. Prior to 2020, ROIC was in the mid-teens on average and has recently reached levels of 45%.

Comfort Systems USA, prior to 2020, had an average ROIC of roughly 20% and has since reached 61%.

Margins throughout the decade have stayed roughly flat. I interpret this to mean that the industry is benefiting from higher demand, and businesses are enjoying higher asset utilization of their equipment, leading to higher returns on capital.

Capital Allocation

In the past decade, MYRG has spent $264 million on acquisitions. Net income increased from $21 million to $118 million. Revenue increased from $1.1 billion to $3.6 billion, and goodwill grew from $46 million to $115 million. They’ve done all of this while keeping shares outstanding roughly flat. The amount of revenue growth relative to acquisition spending suggests that the majority of growth has been organic.

Financial Characteristics

Revenue is growing healthily. The company has more than tripled its revenue over the past decade with a 10-year CAGR of 12%, and an 8.8% 5-year CAGR. MYRG has also realized an increase in free cash flow; however, it is less consistent than I would like to see. The upward trend is driven by three very strong years from 2020 to 2022 and 2025 as an exceptionally strong year, while the other six years generated low or negative cash flow. Overall, the business looks like it’s improving, but likely because of improving industry conditions.

Gross margins have been stable at around 10%.

Debt levels are conservative. For the past five years, total debt to shareholders’ equity has been less than 20% on average, and total debt to EBIT has fluctuated between 50% and 60%.

Risks

The primary risks I’ve realized are:

1. Competition

2. Weakening demand

3. Skilled labor supply

I haven’t found evidence that MYRG is gaining market share, and besides expertise and capital, there isn’t anything keeping outsiders from competing with MYRG. As we’ve seen, the business seems to be benefiting from a booming industry, but I wouldn’t be confident that this elevated financial performance will sustain as new competitors enter the market.

If spending on technological infrastructure, data centers, utilities, industrial construction, and other electrical-related contracting work decreases, then MYRG and similar companies must suffer.

If MYRG must expand significantly to meet new industry demand, skilled labor may become a serious bottleneck.

Conclusion

MYRG seems to be a good business that benefits from a booming industry. The company’s scale advantage allows it to utilize its assets more efficiently and bid jobs at more competitive and accurate rates.

What keeps me from investing more time in researching this business is that I haven't been able to identify a strong moat competitors can’t copy. Also, before the increase in demand, returns on capital stayed below 10%, suggesting the business lacks the pricing power or competitive advantages necessary to generate meaningful returns.

What would change my mind is if I learned that large projects were being concentrated in a small group of contractors, MYRG being one of them, or the only one, with a sustained high ROIC above historical levels after the industry growth normalizes.

For now, this is a pass for me.

Casey’s General Store is a convenience store with self-serve gas stations that specializes in small towns across the Midwest. Casey’s has built a distribution and operating model that allows it to profitably serve communities that are too small to attract larger competitors. Casey’s stores differentiate themselves by offering fuel and a wide selection, including groceries, auto parts, and fresh food. Close to 81% of their stores are in towns with fewer than 20,000 people, with 56% in towns with fewer than 5,000 people.

Casey’s primary advantage is their logistical infrastructure. Casey’s owns three distribution centers and their own fleet, which allows it to stay profitable while serving smaller towns.

The business appears to benefit from favorable working capital dynamics, with a substantial portion of inventory financed through supplier credit. Inventory has been steadily increasing over the past decade, and the accounts payable-to-inventory ratio has averaged roughly 1.27, while operating working capital has remained close to zero or negative. This is a significant advantage because they can fund operations with minimal cash investment.

The 5 and 10-year CAGRs for revenue are 12% and 7%, respectively. Most of that growth comes from acquisitions and new construction, as they acquired 235 stores and built 35, while same-store sales grow only a little each year.

The 5-year ROIC is 12%, and incremental ROIC is just 7.2%, which may indicate diminishing reinvestment opportunities, but additional research would be required to be sure about what’s causing the decrease, whether it’s temporary investment spending, acquisition integration, or simply weaker investing opportunities.

Free cash flow has substantially improved in the past 5 years, and the free cash flow conversion has been between 0.8 and 1.5.

Risks:

What concerns me is the industry’s highly competitive nature. It’s difficult to differentiate outside of location, operational efficiency, and scale. If Casey’s logistics advantage shrinks or competitors improve their economics in smaller markets, returns on future investment could diminish.

Conclusion:

Casey’s seems to be a good business with meaningful competitive advantages. Its logistics infrastructure and favorable working capital dynamics allow it to serve smaller communities profitably. However, growth is primarily acquisition-driven, and incremental returns on capital are not high enough to justify further research at this time. I’m going to put Casey’s on a watchlist, keep an eye out for improving returns, and reassess if the time comes.

At the time, American Express was trading around $230-$250 during a period of economic stress around tariffs. What initially caught my attention was Amex’s primary revenue source: discount revenue. American Express makes money by charging a percentage of the total sale value to merchants every time a consumer swipes their card. I really liked this because, regardless of what happened during the tariff scare, people are still going to spend money and continue using their credit cards. In my mind, if prices increased, American Express could benefit because if the average transaction value increased, then Amex would make more money off every swipe, assuming transaction volume stayed the same, but I was betting volume would eventually rebound if there was an initial pullback.

One of their competitive advantages is how Amex is positioned in consumers’ minds. Their brand is built on their customer relationships and having a strong reputation for putting their customers first.

Another advantage that Amex enjoys is its closed-loop network. Building a payment network is difficult, and a closed-loop network is even harder. Even if a competitor spent massive amounts of capital trying to create their own payment network, it would still be a heavy lift.

American Express has a top-tier customer base, composed of high-income, creditworthy individuals. Until recently, they were primarily focused on older, higher-net-worth clients, but they’ve expanded into the younger generations, while still maintaining strong credit standards, to capture a higher lifetime value. This told me that the company still has a lot of room to grow without sacrificing the quality of its lending.

American Express focuses very heavily on travel, so I was surprised to see that during COVID, when effectively the whole world was shut down and nobody was traveling or vacationing, they still managed to show a net income of $3 billion. During that time, I would have expected a massive decline in total active cards, but that’s not what happened. Between 2019 and 2020, total cards in force only declined about 2% from 114 million to 112 million, which I thought was negligible considering the circumstances. To further the point, the only time in the past 20 years that American Express experienced a decline in total cards in force was in the years 2009, 2016, and 2020, with an average increase of cards outstanding of 4% annually.

Before I made my initial investment last April at an average price of roughly $243 per share, I performed a discounted cash flow analysis with these assumptions: Discount rate 6.5%, Revenue growth 3%, Expenses growth 2%, Terminal value 1%. My model gave me a net present value of roughly $242.

I thought there was a reasonably high probability of achieving an attractive return over the following year. My reasoning was based on my belief that the overall condition of the business did not deteriorate because of the tariff scare, and if consumer prices were going to increase dramatically because of tariffs, I believed American Express would be in a stronger position long term.

Reflecting on that choice, I think I was generally moving in the right direction, but I also missed some very important points:

1. I focused too heavily on net income, and I didn’t spend enough time analyzing free cash flow and what Buffett calls “owner’s earnings.”

2. I didn’t incorporate a margin of safety.

3. My discount rate was too aggressive. I believed Amex carried less risk than most other banks but the discount rate was still too low.

4. I didn’t spend enough time analyzing how management was allocating capital, and I wasn’t paying attention to return on retained earnings.

5. I did not clearly define what would have to go wrong for the investment thesis to fail. At the time, I mainly thought risk would involve damaging the brand or lending to lower-quality customers, but I didn’t think deeply enough about broader structural risks to the consumer credit industry itself, such as changes in regulation and potential caps on interest rates.

Looking back, I think I made a good choice with the information that I had available at the time, but I’d say I got a little lucky considering the mistakes I made and the information I overlooked. Overall, it was a good first experience investing my own money, and I’m going to carry over the lessons I learned this time into the next one.