A Guide to GoodCo/BadCo Situations
Criteria for evaluating GoodCo/BadCo investments + one actionable idea (QV #319)
You have a fresh company under review and the financials look like crap.
Before you move on and write this one off, take a quick peek at the segment results to see if there’s a GoodCo / BadCo situation developing. (That’s short for “good company” and “bad company.”)
This is a multi-part series covering my favorite investment themes (an ode to Peter Lynch’s six “story types”).
Today’s guide is Part 10 of the 15 investment themes I look at frequently. My goal is to improve pattern recognition and pull out the characteristics of the best (and worst) ideas in each category. Case studies and actionable ideas included.
Links to Parts 1-9 are listed at the bottom of this article.
GoodCo / BadCo Situations
Imagine a company with two divisions serving entirely different markets (think: manufacturing & restaurant chain). The first division has $1m annual sales at 20% margins and is growing nicely. The second division has $5m annual sales with 5% margins and is shrinking.
That’s a combined $6m annual sales and $450k profits.
How would you value this company?
