We came across a bullish thesis on Quest Resource Holding Corporation (QRHC) on Lewistown Capital’s Substack by Ryan Seawell. In this article, we will summarize the bulls’ thesis on QRHC. QRHC Technologies, Inc.’s share was trading at $8.48 as of Sept 27th. QRHC’s forward P/E was 17.67 according to Yahoo Finance.
Aerial view of a landfill, with the waste management company’s flagship vehicles toiling away.
Quest is a waste broker based in Dallas, TX who provides waste and recycling solutions to large companies, especially Fortune 1000 firms. Unlike traditional waste management companies, Quest doesn’t own physical assets or handle waste directly it uses a network of over 3,500 vendors to manage waste streams. This approach allows Quest to efficiently handle different types of waste across various regions including general recyclables, automotive, food, hazardous, and construction waste. Quest offers a “one-stop shop” for companies with complex waste needs, making it easier for them to reduce landfill use. Impressively, 70% of the waste Quest handles avoids landfills, compared to the national average of 32%.
Clients benefit from Quest’s expertise in sustainability, cost savings, and comprehensive data reporting, making it a compelling partner for businesses prioritizing ESG initiatives. Major clients include big-box retailers, automotive services, industrial manufacturers, restaurants, and food distributors
Quest stands out as a leading player in the waste broker industry, second only to Keter Environmental Services, and uniquely positioned to serve Fortune 1000 clients. Its platform manages diverse waste streams while offering advanced data and reporting capabilities. Quest’s pricing advantage, driven by its scale and cost leverage with vendors, strengthens its competitive edge, enabling further market penetration. Quest has demonstrated remarkable growth, tripling revenue since 2020 and quadrupling EBITDA, with expectations of continued momentum in 2024. The company benefits from high-margin, recurring revenue tied to contractual agreements, which has resulted in net revenue retention estimated between 105-110%. Quest’s strategy under CEO Ray Hatch has focused on churning low-margin business, resulting in higher profitability and long-term scalability.
The industry’s consolidation, including the challenges faced by Rubicon, further positions Quest to capture additional market share. As the waste brokerage sector shifts toward more scalable platforms, Quest’s efficiency, cost competitiveness, and technological investments provide a strong foundation for sustained growth.
With a robust pipeline, Quest is well-positioned to expand its customer base, making it an attractive long-term investment opportunity. Quest currently trades at approximately 14-15x EBITDA based on 2023 figures, dropping to ~10-11x when accounting for expected upsell and locked-in wins for 2024. This valuation is attractive compared to waste majors, which trade at 16x forward EBITDA and aligns with 3PLs’ historical multiples of 12-15x. Investors can expect a mid-teens CAGR through 2029, resulting in a projected 3.5x+ MOI and a ~30% IRR over five years.
Quest Resource Holding Corporation is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 7 hedge fund portfolios held QRHC at the end of the second quarter which was 8 in the previous quarter. While we acknowledge the risk and potential of QRHC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than QRHC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America.
Disclosure: None. This article was originally published at Insider Monkey.