Hey everyone, I’m new to Reddit. What are your highest conviction long-term compounder stocks in Japan?
I’ll start first. Here is one of my highest conviction long-term compounder stock picks, Round1 (4680). R1 is an amusement operator (bowling, arcades, crane games, food/drinks, spo-cha and KTV). They have 48 stores in US, 100 in Japan and 4 in China. Growth story is that they have massive growth potential in the US, where they are geographically the most profitable on a per store basis. Bowlero (300+ stores, 16x EV/EBIT) and Dave and Busters (200+ stores, 11x EV/EBIT) trade much higher in terms of valuation multiples with less room to grow.
R1 trades at 11x EV/FCFF, 13x P/FCFE and 6.4x EV/EBIT. There is a FCF catalyst that I go through in detail in the link below, but essentially they invested heavily into crane games and they recognize depreciation of crane games over 3 years as that is the term of their finance lease in Japan, but crane games have a useful life of 10-15 years. Due to high depreciation costs, real earnings are much greater than reported earnings. By 2027, the finance leases will be over and EV/FCFF is 6.6x, P/FCFE is 7.4x and EV/EBIT is only 4.6x. The stock is a double roughly when they open 50 more stores in the US.
[https://emergingvalue.substack.com/p/round-1-4680-quick-pitch-undervalued](https://emergingvalue.substack.com/p/round-1-4680-quick-pitch-undervalued)
by ContinuousCompound