SWI Pick #24: Digital Medical Toll Bridge, AI-Resilient
100% retention over nearly 2 decades, AI is a tailwind.
Investing is simple - ‘buy quality and verify quality,’ but incredibly hard to execute. SWI has enjoyed a very good two and a half years, until one mistake and an AI-induced SaaS multiple compression brought the portfolio down. But changing strategy now would be a trajedy - ‘buy high sell low’.
Patience is required.
The good news is that my investment period runs until 2037, so what has happened in the past 6 months might not matter much in a few years, and definitely not in over a decade. I still believe that consistently (i) putting aside emergency funds, (ii) investing excess in high-quality companies, and (iii) staying invested through tough times will help me build a reasonable capital and knowledge base for my daughters’ future.
Today, I am putting money where my mouth is - I will initiate a starting position in SWI Pick #24 and add more over the next few quarters.
Learning from my mistake, this is a more predictable business and will be a smaller starting position.
#24 is a technology leader whose alternatives are legacy solutions and AI as an accelerator instead of a competitor.
The product is mission-critical to top-tier hospitals, 100% of whom renews long-term contracts lasting 5+ years.
Durable growth opportunity with a large whitespace and a market cap of under $10B.
Clean financials and prudent accounting, no debts, 50% of cash allocated to dividends, and capex-light.
Risks include high valuation, looming succession planning, legacy solutions fighting back, and AI still bringing uncertainties.
Why now? The business has been perennially expensive, but it has been bundled with the ‘AI SaaSapocalypse’, pulling the stock down by nearly 60% in the last 7 months from its peak, giving it a good time to buy in stages (dollar-cost-average) into a position, or at least to do the work now before we get a better entry point.
If you are new to SWI, here is the link to all write-ups.
What is Sleep Well Investments?
Deep research on a few exceptional niche leaders.
Patiently waiting and thoroughly following up for buying opportunities.
We will go through:
Investment Thesis
Why does it help us sleep well?
Mission-critical product, slow-changing customers
Founder-led management
Solid moats and barriers to entry
Organic growth opportunities
Limited competition
Risks - legacy fighting back, key man
Valuation
Sleep Well Scores