🗞 The 10 Best Founder-Led Stocks

Happy Sunday!

Here’s what’s on the docket for this week’s newsletter:

• 📊 10 Best Performing Founder Led Stocks

• 🚩 Herb Greenberg Red Flags SiteOne

Let’s dive in!

Featured Story

The 10 Best-Performing Founder Led Stocks

Founder-led businesses tend to possess a unique advantage. Since a founder’s wealth is typically tied to the long-run performance of their company, they can think longer-term.

The founder doesn’t need to manage the business to hit short-term compensation targets, but instead can be more willing to invest in longer duration, higher upside projects.

For long-term investors, this is the kind of alignment you want.

Here are the 10 best performing stocks that are still led by their founders today:

1. NVIDIA

Nvidia was founded in 1993 by Jensen Huang, Chris Malachowsky, and Curtis Priem.

Though their business of designing 3D graphics cards was initially geared towards the video game market, the ability for chips to process tasks in parallel instead of in sequence has found far more applications today, most notably in AI training.

Jensen Huang is still the CEO of Nvidia today and retains a 3.5% stake in the company.

Total Return: +382,046%

2. Axon Enterprise

Axon was founded in 1993 by Rick Smith and went public in 2001. The company was named TASER until 2017, as the business model has shifted predominantly to a software business for law enforcement agencies.

Smith is still the CEO today and retains 3.9% ownership of the company.

Total Return: +136,353%

3. Constellation Software

Constellation Software was founded in 1995 by former venture capitalist Mark Leonard.

The serial acquirer of vertical market software companies has a unique culture of insider investment led by Leonard himself who still owns 2% of the company.

Total Return: +36,577%

4. Pro Medicus

Sam Hupert co-founded the Australian healthcare informatics company in 1983 when he was just 28 years old.

Hupert, who is now 70 years old, still runs Pro Medicus and owns 23% of the company.

Total Return: +33,528%

5. MercadoLibre

MercadoLibre was founded in 1999 by Marcos Galperin while he was pursuing an MBA at Stanford.

Galperin is still the CEO of the sprawling Latin American e-commerce giant and retains 7% ownership through his trust.

Total Return: +8,808%

Fiscal in the Wild: Herb Greenberg | On the Street

Why I’m Red Flagging SiteOne

Many if not most rollups eventually reset. They either run out of good companies to buy or wind up stretching on the wrong one. Or they run out of firepower to do more deals... at least the kind that make financial sense.

There are exceptions, to be sure, such as insurance broker Brown & Brown, which I recommended in 2022 while writing a long-biased newsletter. At the time its stock was a bit less than half where it is now.

I was dubious when I started my research – in large part because... it’s a rollup!

Or as I wrote at the time...

“I’m not a fan of rollups – companies that generate much of their growth from acquisitions.

But the insurance brokerage industry is different, with acquisitions playing a perpetual and central role to the model...

Some deals are quite large, such as the purchase earlier this year of Irish broker Global Risk Partners, which has revenue of $340 million.

But most are considerably smaller, with a never-ending supply of targets. All in, there are 25,000 agencies in the U.S. That number hasn’t varied much, because for every agency sold, another is started with the ultimate goal of selling.”

But they’re not all like that. I always think about Brown & Brown when I dive into a rollup, since they can fool and trap both shorts (betting against them too soon) and longs (overstaying their visit.)

Tale of Two Rollups

That gets us to SiteOne Landscape Supply, which since going public nine years ago has evolved into the nation's largest wholesale landscape distributor – largely through acquisitions.

A look at the total return and gains on the stocks of SiteOne and Brown & Brown since SiteOne’s IPO tells the tale of two very different roll-ups. SiteOne is the purple line...

Or since 2020…

The obvious question: Why red flag SiteOne? And why now? After all, its shares are already well off its 2021 highs and have done nothing for the past three years...

The Answer...

Short of the company itself getting acquired for a robust premium, which seems highly unlikely, there’s no reason for this stock to rise anytime soon... and every reason for it to continue to drift lower.

That story, in its simplest form, can be seen quite plainly in the below chart, which

shows annual revenue and organic sales growth – or organic daily sales growth, as the company calls it. It has tumbled for 13 straight quarters...