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SiteOne: The “Home Depot” of Landscaping?

If you’d put $10,000 into Home Depot at its 1981 IPO, you’d now have nearly $35 million.

Before Home Depot, most Americans relied on their neighborhood hardware store for the essentials of home maintenance, recalls Timothy Lutts, editor of Cabot Stock of the Week.

Since then, Home Depot (HD) has mushroomed into a colossus, with more than 2,200 stores spread across the U.S., Canada, and Mexico. Suffice it to say, HD has been a good investment; if you’d put $10,000 into the stock at its 1981 IPO, you’d now have nearly $35 million.

SiteOne (SITE) is working to do for the landscape supply industry what Home Depot did for the building materials and home improvement industry—create a national brand that uses economies of scale to provide a better experience for the customer.

SiteOne was spun off from Deere & Company (DE) in May 2016, and it’s now the largest (and only national) supplier of landscape products in the U.S. With 478 stores, the firm offers about 100,000 items.

It’s the only one-stop shop for commercial and residential customers. In total, SiteOne has four times the market share of its next largest competitor.

Yet despite its dominant position in the landscape supply field, SiteOne has just 10% of the market (estimated at $17 billion). Said another way: 90% of the industry’s sales come from smaller, often local competitors.

SiteOne tops them by using its scale (buying power) to attract customers, and often, by simply acquiring these local and regional competitors.

As these firms are integrated, synergies kick in, leading to higher margins and an overall stronger competitive advantage. Right now, SiteOne is the only industry consolidator.

Leading the way at SiteOne is CEO Doug Black, a West Point graduate who for 18 years headed up OldCastle, a huge building-materials supplier. Black took that company from $900 million in sales to $12.6 billion, with acquisitions playing a key role. He’ll be doing the same for SiteOne in the years ahead.

SITE soared from its IPO in May 2016 right through September, pulled back into November and has been marching higher since.

The big acquisition of American Builders Supply in mid-March (along with a great quarterly report) sparked a big-volume pop higher. Try to buy on pullbacks and keep the Home Depot story in mind.

Timothy Lutts is the President of the Cabot Heritage Corporation, one of America’s oldest independent investment newsletter publishers founded by his father, Carlton G. Lutts.

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