We have written at length about the four key criteria (“4Cs”) on which we evaluate companies: sustainable growth, competitive advantage, quality management, and financial strength. Perhaps more importantly, the members of our investment staff look for changes in these attributes. It is important to understand not only where a company stands today on the 4C scale, but also whether a company is likely to accelerate growth, enhance its competitive advantage, improve corporate governance and management standards, or strengthen the balance sheet. One such example is Waters. The company operates within a consolidated niche of the life science tools industry that includes liquid chromatography, mass spectrometry, and thermal analysis systems. Our analysis of the company and its competitive positioning leads us to believe that Waters’ growth profile will improve over time as demand for its instruments increases. As an important supplier to pharmaceutical companies, we believe that it stands to benefit from increasing capital spending, both for researching new compounds and for running quality checks in drug manufacturing plants.
This month we bought shares in a Saudi Arabian fast food chain, Herfy. The fast food format has been gaining popularity in Saudi Arabia, and has grown at 8% per year for the last five years. Herfy primarily targets customers under 35 years old, a large and growing demographic in a country where almost half the population is under 24 years old. Young Saudis are increasingly drawn to fast food because the outlets provide an alternative destination for entertainment. The chain opened in 1981. It now operates 257 restaurants within Saudi Arabia and has 20 franchises in Bahrain, UAE, and Kuwait. In addition to restaurants, the company operates bakeries and meat processing facilities, which sell to the restaurant chain and to third parties. The company plans to expand outside the major cities and to double the number of restaurants over the next five years.
We build diversified portfolios of high-quality, growing companies identified through fundamental research.