16: I Created a New Metric for the Waste Management Industry

Profit per ton seemed important. My research found no one using the metric.

Issue #6 of the paid Watchlist Investing Newsletter went out to subscribers yesterday, which focused on the waste management industry in the United States. The three primary companies covered were Waste Management (WM), Republic Services (RSG), and Waste Connections (WCN).

Tertiary companies GFL Environmental (GFL), Casella (CWST), Stericycle (SRCL), and Sharps Compliance (SMED) were also covered briefly. 1

In thinking through the economics of the business I realized it’s pretty much all about getting waste from Point A to Point B. Scale economics is important. Integrated companies with landfill assets enjoy further advantages. Yet despite the use of tonnage in many different contexts, I found no one using profit per ton. This seemed to be an extremely useful and simple way to measure the companies’ success.

Coupled with the capital required per ton I could view each company’s pre-tax return on tangible capital. See charts below.

The end result of my analysis found the companies to be quite overvalued. But the exercise was well worth the effort. I now have an excellent grasp on an industry that is going to be around forever, and an excellent launching point from which to study other, tertiary businesses.

Have you studied the waste management industry? Have you seen anyone else using profit-per-ton? Am I wrong in using it? Let me know what you think in the comment below!

Stay rational! -Adam

Check out the paid version of Watchlist Investing, which features Deep Dives and Quick Looks into companies to help you be in a position to move quickly when Mr. Market overreacts and presents buying opportunities.


Disclosure: At the present time I do not own any of the companies mentioned in this article.