Trading Below 10× Earnings, Compounding at 20% – One of the Highest-Quality Industrial Models You Can Still Buy Cheap
Great Unit Economics, Disciplined M&A, Zero Attention
Every now and then, a stock gets punished not because of deteriorating fundamentals, but because the market simply doesn’t know what to do with it. Ashtead Technology feels like one of those cases. Despite delivering blistering growth, fat margins, and exceptional returns on capital, the market seems to be looking the other way. And that disconnect is exactly what caught my attention.
What we’re looking at here is a classic “picks and shovels” business in a niche but expanding part of the energy value chain – subsea equipment rentals for offshore oil, gas, and wind infrastructure.
It’s asset-heavy but in a way also capital-light. It’s operating in a cyclical industry, yet strangely resilient. It’s still small-cap, but already a dominant global player in its field. On almost every operational metric, the company looks stronger than ever. But on a valuation basis? It’s trading like the market’s pricing in a downturn that hasn’t arrived and might never come in the way people expect.
Ashtead was established in 1985 and became part of the Ashtead Group (from 1990 until 2008). That year, Ashtead Group deemed the business “non-core” and sold it to Phoenix Equity Partners. Under Phoenix's ownership, the company was highly leveraged, and during the 2016 oil price collapse, it was sold to Buckthorn Partners and Arab Petroleum Investments. Buckthorn implemented a successful M&A strategy focused on consolidating the fragmented subsea rental market. This approach proved highly effective, and Buckthorn completed its exit in 2022 and 2023.
Let’s talk about the stock itself. The stock IPO-ed in late 2021 and shares are trading on the London Stock Exchange’s Alternative Investment Market (AIM). Since IPO, Ashtead Technology’s share price more than doubled (Ashtead’s IPO price was £1.63/share), and at one point, traded above £8/share – a five-bagger at the highs. But in the last 12 months, things reversed sharply. The stock is now down around 50% from its previous high, even as fundamentals have kept moving in the opposite direction.
If you zoom out to the last three years, Ashtead still sports triple-digit total returns, but it’s now trading at <10× NTM earnings (once you account for earnings power contributions of recent acquisitions – more on some required adjustments in the valuation section) despite double-digit organic growth (2024 FY growth of 52%, split 39% from M&A, 14% from organic growth and -1% from FX) and strong customer backlogs.
That gap between execution and valuation is exactly what makes this setup so intriguing.
In this deep dive (around 15,000 words; very likely the most comprehensive writeup you can find on this business), I’ll walk through:
Why this capital-light rental platform – with margins north of 20% and ROIIC that is much higher than you’d expect from an industrial player – might be one of the most underappreciated compounders in small-cap industrials
How the company quietly built a moat through scale, customer integration, and high-return fleet deployment – despite lacking traditional IP or software lock-in
What makes the business model so attractive
A close look at management’s capital allocation playbook – how they’re compounding value through disciplined bolt-ons
The key risks that could derail the thesis – and why I still think the market is mispricing both the growth and the durability of this model
A full valuation breakdown showing why this high-return business, trading at ~10× earnings, offers a compelling asymmetric setup
Let’s dive in.
Disclaimer: I own shares in Ashtead Technology and am hence biased. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.
Bam Bam Bam Bam Bam – Why Ashtead Technology Caught My Attention
As always, I’ll start with a “Bill Miller style”-pitch, who once said that every good stock pitch should be over in 90 seconds. If you can’t hook someone with five quick “bams,” you don’t have a pitch – you have a problem. With Ashtead Technology, I don’t need 90 seconds. This is one of the cleanest disconnects I’ve seen recently between fundamentals and valuation.
So why does this stock matter right now?
Because we have a structurally advantaged, under-the-radar business with a multi-year track record of compounding revenue at roughly 40%+ annually over the last three years – and it’s just been cut in half by the market.
Not because the fundamentals have deteriorated, but because the narrative got foggy. The market’s worried about macro, offshore wind sentiment, and a little debt. But the actual business? It's hitting all-time highs in revenue, margins, and customer backlogs.
Here’s what I think the market is missing: Ashtead isn’t just a cyclical oil & gas rental company. It’s a global one-stop-shop for mission-critical subsea tools, leveraged to both energy transition and decommissioning trends, with serious scale, pricing power, and reinvestment runway. The stock is priced like a commodity play – but this is a picks-and-shovels compounder with almost software-like gross margins (consistently above 70%).
Here’s the short-form pitch:
BAM – Mispriced compounder: Stock trades at ~8-9× NTM steady-state earnings despite 40%+ topline growth, software-like gross margins, and solid ROIC (and exceptional ROIIC). PEG is below 1x.
BAM – Structural shift to renting: Ashtead is riding a long-term behavioral shift among customers from owning to renting – enabling more asset-light operations.
BAM – Secular tailwinds + customer backlogs: Offshore energy is booming again (both oil/gas and wind), and Ashtead’s largest customers are reporting record multi-year backlogs. That demand is locked and visible.
BAM – Dominant market position in a fragmented industry: Ashtead is the biggest independent subsea rental company globally. Recent acquisitions gave it 50%+ share in key niches. Scale → differentiation → pricing power → high returns.
BAM – Optionality through M&A and Main Market uplisting: Smart roll-ups at 5–7× EBITA create real value. An uplisting from AIM to the LSE Main Market could catalyze a re-rating and bring in a whole new class of buyers.
This thesis isn’t relying on “calling a bottom” or swinging at a turnaround (which “seldom turn”). I think we can buy a high-quality, solid-growth business at a price that assumes it’s going to stop growing altogether.
Let’s unpack the story of Ashtead Technology.
The full analysis starts here:
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