About Mister Car Wash
Cue the groovy dance music, it’s time to take a trip to the car wash.
It’s one of those timeless weekend activities to get your car ready for the havoc that lies in the week ahead.
Isn’t it great when that happens?
Regardless of what one has experienced, car washes aren’t typically thought of as an exhilarating, incredible circumstance but it’s still a fun one, the experience topped off with the reward of coming out of the self-guided shuttle with a car that just looks and feels different.
Mister Car Wash in particular can be thought of as the McDonald’s or the Walmart of car washes.
It leads the pack, although, the car washing industry is known for being highly fragmented as there are loads of local and regional carwash chains spread across the United States, some with a simple yet impactful neighborhood presence and others with a stronger, more prominent, national presence such as the likes of Take 5, Zips Car Wash, Quick Quack and many others stalking Mister Car Wash like prey.
Nonetheless, Mister Car Wash is a rather large, intimidating animal itself, with reportedly 425 nationwide locations (apparently the most of one company within the entire sector) along with a host of product and service offerings that others just simply can’t compete with.
All that said, we’d like to briefly mention two pertinent facts regarding both Mister Car Wash and the industry in which it operates.
Ever since the company’s initial public offering (IPO) in 2021, its share price (NYSE: MCW) has tumbled nearly 63%, which could, depending on how you look at it, present an opportunity for those who are keen on directing some of their investable capital into the automotive space, more specifically, the car washing industry.
Additionally, it would be foolish if we neglected to note that the industry itself is littered with regulations that companies such as Mister Car Wash must adhere to and any slip up in complying with said regulations could lead to immediate bad news for the company and of course, its share price will never be immune to such news.
Although we assume the company is up-to-date on current regulations both at the local and federal levels, it is worth understanding prior to considering investing in the company’s stock that this industry is especially known for being heavily regulated and at times, hard to navigate, even perhaps for the bigger players in the car washing arena.
Now, onto some of the company’s core financials.
Mister Car Wash’s stock financials
Currently a $2.65 billion company (according to the company’s current market capitalization, or the value of its share price multiplied by its total shares outstanding), Mister Car Wash is trading at a share price of $8.61, doesn’t currently distribute an annual dividend to its shareholders and has a present price-to-earnings (P/E) ratio of 25.05.
First and foremost, we are far from surprised that the company isn’t issuing a consistent annual dividend to its shareholders, as this company, despite its already large presence, probably has some more regional and national growing to do, thus it needs to retain as much of its profits to responsibly fund said expansion and issuing any sort of annual dividend would just act as a cash strain for this company, especially at this current phase.
We were pleased to find that the company has a price-to-earnings ratio readily available, not to mention that it indicates that its stock (NYSE: MCW) is trading at just a slight premium.
Having earnings to report tied with a P/E just barely higher than that of the fair value benchmark isn’t bad at all, as it signals that this company’s stock (NYSE: MCW) is, even after getting pummeled this past year’s span of time is inching exponentially closer to trading at a fair valuation.
As it relates to Mister Car Wash’s balance sheet, the company’s executives are in charge of handling, managing and properly deploying approximately $2.7 billion by means of total assets as well as around $1.9 billion in total liabilities.
Given all of the costs involved in running a carwash (i.e., labor, operations, permits, equipment wear and tear etc…), we were actually pleasantly surprised to find that the company’s total assets stand as high as they do in comparison to the amount of its total liabilities.
To be recession proof or not to be recession proof, that is the question.
While we like to think that we’re good at gauging whether or not a company (or its industry for that matter) is resistant to recessionary or other related economic pressures, we must concede that the carwash space isn’t familiar territory to us and thus it is rather difficult to definitively say whether or not we thought the industry is especially sensitive to recessions or on the other hand, largely resistant to such downturns.
Let’s allow the numbers to help us out.
Given the state of the company’s total annual revenue over the last five years (according to the company’s income statement), the latter seems to bear more reality than the former, thankfully.
Specifically, Mister Car Wash’s total revenue fell from $630 million in 2019 to $575 million in 2020, however, picked itself back up and launched to $758 million the following year, rising to its latest reported figure (on TD Ameritrade’s platform) of $877 million.
It turns out that while America’s largest car wash chain isn’t completely immune to a weakening consumer and their tightening budgets, revenues have still remained strong and shown some bounce back during the years that followed.
Sure, like most other companies Mister Car Wash likely passed on some of its increased costs onto the consumer, however, even if that was the case these are still strong numbers to report.
Perhaps this could also purely be expansion, as planting more and more locations will pretty much always push total revenue up (at least, in most cases), however, even if that is the case it makes us happy campers because it means that, while keeping its balance sheet lean, the company is intent on playing offense (i.e., continuing to expand its national presence) while other companies and chains are forced to play defense (i.e., cut back on growth, close locations etc..).
When it comes to the company’s cash flow statement, Mister Car Wash’s net income was also a surprise to us.
A good one at that.
For instance, the company’s net income in 2019 stood at a mere $1 million, escalating to $60 million the following year, dipping its toes down into negative territory in 2021 (which makes sense given the added expenses the company had to incur due to COVID-19 and inflationary pressures) to -$22 million to its latest reported figure (again, according to TD Ameritrade’s platform) of $113 million, as reported in 2022.
To us, this implies that the company’s executives are great debt managers and deployers, as even during the worst of the worst of COVID-19 so far, it kept its balance sheet in good shape (total asset-heavy) and carved out a solid amount of total cash from its operations each year since 2019.
Mister Car Wash is apparently onto something with its business model.
Mister Car Wash’s stock fundamentals
Being the unequivocal leader in an industry, irrespective of what that industry might be, tends to be a good perk.
Why?
Well, among other things, it usually allows the leader to comfortably maintain a trailing twelve month (TTM) net profit margin that is notably greater than that of the average of its peers.
At least, that’s certainly the case with Mister Car Wash.
According to TD Ameritrade’s platform, the company’s TTM net profit margin towers over the competition’s average at 12.88% to the average of -21.00%.
Although it was more than reasonable to expect the company’s TTM net profit margin to be higher than that of the industry’s average, we surely weren’t expecting it to stand as high as it does relative to its peers (on average) combined with the fact that this company is still growing, which usually hampers one’s ability to generate a substantial TTM net profit margin, however, it seems as though Mister Car Wash is bucking this trend.
This is yet another example of operational excellence within its category.
Another indicator of operational excellence is rooted in the company’s TTM returns on both assets and investment, as according to TD Ameritrade’s platform, Mister Car Wash’s stand at 4.40% and 4.66% to the industry’s averages of -5.78% and 1.45%, both respectively.
Should you buy Mister Car Wash stock?
When the stock price goes down yet the core financials are going up (particularly figures such as total annual revenue and profit margins), there lies a potential point of reflexivity and if realized, the investor’s long-term profit due to the eventual convergence of perception and reality could be staggering.
We’re not saying this is exactly the case with Mister Car Wash and its stock.
However, to lead a highly fragmented, competitive industry, maintain a solid balance sheet, experience total revenue growth during the times the economy has endured thus far, there seems to be a lot of value stored within this company and its stock for long-term oriented investors, even though its share price is objectively a touch overvalued at the moment.
Given all of this information, we deem it most appropriate to give the company’s stock a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.