Compounders: Three Ingredients From The Most Amazing Gas Station Pizza

On road trips as a kid, my favorite snack at the gas station was a Snickers bar. If I were really lucky, and it was a fancy gas station with a freezer, I’d cross my fingers that they had a bombstick. Each one of those seemed fresher than anything cooked behind the glass.

Gas station grub has gotten a lot better at a few stops. On a recent road trip visiting colleges with my daughter Casey, we stopped at my favorite gas station.

She thought I was just being goofy, wanting a photo, because of the name. She was only half right.

When I took her inside, she saw and smelled the reason why this was a research trip for one of my favorite stocks.

A four-time James Beard award-winning chef recently judged the final four best pizzas from hundreds across the country, all entered by Casey’s General Stores team members. You see, this special gas station is also a top-five pizza chain in America, by sales, despite (or because of) selling only in small towns.

For our partners who trust us to find long-term compounders to invest in, here are three things I’ve learned as a large stakeholder of Casey’s.

1)      The best opportunities in the Stock Market are UN-crowded

How many times have you heard about the potential of a game-changing technology stock over lunch or at a dinner party with friends or family?  Now, how about a gas station pizza stock? Yes, there is astounding growth to be found in the best technology companies. We have found what’s even rarer, and often more profitable, are game UN-changers - delivering remarkable consistency to steady demand.

• There are almost 3,000 stores, and growing, in rural areas with limited competition.

• Two-thirds of the stores are in towns of 20,000 people or less.

• Acquiring small operators in a fragmented industry offers a long runway for growth.

• Three-quarters of all towns with 20,000 people or less already in Casey’s distribution centers' footprints do not have a store yet.

• A recent push into small Texas towns could result in an additional 1,000 stores there alone.

2)      Create your own economy, too busy to worry about national consumer averages

• More than 10 million loyal customers visit stores regularly, regardless of the gas level in their tank.

• Loyalty earned from exceptional fresh food choices reduces price sensitivity to gasoline prices. Customers don’t drive to another station to save a couple of dollars.

• Prepared food profit margins are 58%.

• Stores carry more than 300 private-label products.

• Three out of every four transactions do not involve the purchase of gasoline.

Our favorite consumer stocks are the very unique businesses where, if you ask any team member what they think of the overall economy, they have no idea. They do not worry about that, because they are too busy filling orders. Consider the same drill, next time you read or listen to an economist or market forecaster being interviewed about what they think should happen next. Some businesses are too busy working on what already is happening in their stores.

Here is our kind of unique consumer sentiment readings from Casey’s latest earnings report: “Our whole pies are performing exceptionally well. We saw a very strong response to our Thin Crust Thursdays.” The highlight of the report was that same store sales growth accelerated, and earnings were up double digits again (for 20 years and counting). 3)      Actively managed portfolios can find big advantages over indexing

Curiosity beats conviction. Not only is that a staple in our stock selection process, but it’s also just a more interesting and delicious way to navigate through life with an open mind. In the Stock Market, more and more money is being indexed with fewer and fewer investors believing that active management offers an edge. The crowds are convinced that homework on individual stocks does not matter.

We love daring to be different. We believe that homework still matters. For 30 years, we have proven this objectively, and I think it will matter even more going forward. There are fewer of us left now, and the rewards can be more substantial as a result. To be clear, I do not think one is good or the other is bad. In fact, one can be a wonderful complement to the other in a balanced portfolio. I think the active versus passive investing debate is an incredibly misleading question to begin with for investors. We are ALL active investors. And the indexes are not at all passive. Guess what stock just got added to the S&P 500 by the investment committee in charge of managing that index?

When Casey and I went into that store in Fayetteville, Arkansas, we learned about an innovation from their R&D department that will not be replaced by AI. They have a brand-new Ultimate Waffle Breakfast Sandwich, and it was already sold out.

I love this job so much,

Ryan