Italian IT services compounder

Trading at 8-9x PE

When I played poker back in the day there were two types of payoffs. Tournaments where you pay say $200 and could win $200k in one night, or the cash games where someone will sit with say $545.38 at a $600 buyin table and play every hand to try and make a flush. 

Most people would be drawn to the tournaments because that is where the big money was right? The problem was that most of the time you would not win and lose your $200 even if you were a good player, and the expected value from that guy who sat down at your cash game table with $545.38 and just played every hand was much higher. You could slowly bleed his stack, he would telegraph his hand strength and when he finally got impatient he would pay off if you hit a big hand. And as long as there were plenty of fish like that, your hourly win rate would be much higher. 

I think a similar phenomenon exists with stocks, there are quality stocks that trade at 8-9x earnings, and will produce a fairly reliable double from multiple rerating and earnings growth over the next 2-3 years. There is no clear catalyst other than that it is an above average company that will very likely keep growing faster than GDP. They are quite boring, but offer reliable outperformance if you select them well and have patience. Management is often not very promotional and lets the results do the talking.

And on the other end there are options or some Crypto shitcoin. Or the value investor version of that, nanocap stocks that trade at 15% of book value, or would trade at <1x earnings if only they manage to do that turnaround or get those promised contracts signed. They offer big gains, but are often risky enough that expected value isn’t that great and with some exceptions are usually value traps. I must admit I have a few of those in my portfolio. 

But the stock I have today falls within the first category. and could actually be a multibagger for investors with enough patience (and actually has been since its IPO in 2013). It is a generalist Italian IT services company (but growing outside of Italy as well) that has been acquiring smaller private companies and has shown steady organic growth and expanding margins in the past decade. Organic growth ROIC is 40-50%, the company has no net debt, has grown earnings at a 16% rate since 2012 and trades at about 8-9x 2025 earnings. A steep discount to other listed IT service companies in Europe and the US.

There are no indications that growth will grind to a halt (but some indications that growth will slow down), and the stock trades at 8 year NTM PE lows.