Image Source: Unsplash

The core intention of this site is equity analysis based on what really matters for the success of a long-term investment (3+ years).

Not coincidentally, that dovetails nicely with the factors that often determine the long-term success or failure of a business.

And there is nothing — NOTHING — more important to the success or failure of a business, especially a new business, than the people behind the business plan and its execution.

Competent, dedicated leadership is arguably the single most valuable factor in determining whether a new business succeeds or fails.

Great leadership knows how to develop a business plan that mitigates risks and capitalizes on opportunities. It knows how to build a business with strong economic moats to dominate the competition. It can identify inefficiencies in markets that present huge growth opportunities.

Today, I want to present a Green Screen stock with a profile that differs from our typical, established cash gusher — an opportunity that's compelling in its own right, but ultimately grounded in the proven competence of its CEO and his incredible track record.

The stock is QXO. Let's take a look!

The QXO Playbook

Understanding what QXO is isn’t necessarily straightforward for a casual investor.

Think of QXO as a new company. While it was technically formed through (now CEO) Brad Jacobs’ private equity takeover of a small public company called Silversun Technologies, that’s just a detail. The goal was to avoid the hassle and expense of an IPO by acquiring an existing public entity. QXO’s future has nothing to do with Silversun’s old IT consulting business.

The Silversun acquisition and renaming to QXO were simply step one in Jacobs’ broader plan. Step two came in March with the $11 billion acquisition of Beacon Roofing Supply, one of the largest suppliers of roofing, siding, and insulation in the U.S. As of now, QXO essentially is Beacon.

You might ask: why be interested in a building materials supplier growing at 7% annually with 5–6% free cash margins? It’s a fair question.

Jacobs’ ambitions are far greater. Beacon is just the first acquisition in a much larger vision to consolidate the highly fragmented — but incredibly vast — building supply industry. This industry sees roughly $800 billion in annual U.S. sales and more than $2 trillion globally, growing at over 4% per year.

Despite its size, the industry is shockingly outdated. More than 10,000 distributors operate in North America alone, and B2B digital penetration is only in the mid-single digits. That means most transactions are still conducted via phone calls and paper records.

This presents a ripe opportunity for consolidation and modernization. Jacobs’ plan is to roll up these distributors under QXO and digitize operations using SaaS and AI tools — boosting efficiency and profitability.

Growth and Recurring Revenue

Everything about QXO at this point is forward-looking — the Beacon deal only closed in April.

Beacon had been growing sales at around 8%, and was forecast to reach about 10% this year. That gives QXO a solid operational base to start from.

Looking ahead, QXO’s management has been clear about its plans to modernize Beacon and use it as a platform for further acquisitions. Jacobs has publicly stated a goal of growing QXO to over $50 billion in annual revenue within 10 years — and Beacon only gets them 20% of the way there. Expect aggressive M&A activity.

As for recurring revenue: I see the building supply market as a tollbooth on global construction. It’s economically sensitive but also essential — with over 100,000 contractors as customers, revenues might fluctuate but are unlikely to fall off a cliff. As QXO modernizes and adopts SaaS-based offerings, I expect new recurring revenue streams to emerge that reduce cyclicality.

Moat

We’re still in theoretical territory, but there’s clear potential for QXO to build meaningful competitive advantages.

First, if the team succeeds in consolidating this fragmented market, QXO will benefit from significant economies of scale — a major advantage in a commoditized sector.

Second, by developing a robust software platform, QXO can introduce switching costs. If it offers superior pricing, inventory, and logistics tools, customers will begin relying on it as their default supplier. That stickiness leads to customer retention and long-term pricing power.

Of course, all of this depends on execution. But there’s a clear roadmap for building a durable moat in what is traditionally a low-margin, competitive industry.

Management and Finances

This is where I justify my enthusiasm for what is, admittedly, a non-traditional business model for this site.

Long-time readers know I’m usually wary of acquisitive growth. It’s easy for companies to overextend and destroy value. Success requires exceptional management and careful execution.

Brad Jacobs is that kind of manager.

He has executed this same playbook — targeting large, fragmented, under-digitized industries — three separate times with enormous success:

• United Waste Systems: Rolled up small regional waste haulers and sold the business in 1997. Today, it’s known as Waste Management — the global leader in trash collection.
• United Rentals: Consolidated the equipment rental space, acquiring RSC, Neff, BlueLine, and more. It became the largest equipment rental company in the world, sold for $6.6 billion in 2007.
• XPO Logistics: Took control of Express-1 in 2011 and scaled it via hundreds of acquisitions. It’s now worth over $17 billion, with spin-offs GXO and RXO valued at another $7 billion combined.

QXO is his biggest and boldest bet yet — targeting an even larger market. If anyone can successfully pull off a consolidation-and-modernization strategy, it’s Jacobs.

Financially, QXO is a roll-up operation. The balance sheet will never be pristine. Post-Beacon, QXO holds about $4.8 billion in debt — a ~100% debt-to-equity ratio. It’s not without risk, especially in a recession, but it’s within reason given the industry’s typically stable demand.

Risks

Let’s be clear: QXO is a riskier pick than most highlighted here. This is a bet on market potential and executive performance more than predictable business fundamentals.

Key risks include:

• Leadership succession: Brad Jacobs is 68. If he doesn’t remain at the helm long enough to execute the full strategy, I’m unsure anyone else could carry the vision forward.
• Acquisition missteps: Integration issues, culture clashes, hidden liabilities, or customer churn could derail the roll-up plan.
• Leverage: With an aggressive balance sheet, QXO could be vulnerable in a deep construction downturn, especially if credit markets tighten.

These are significant concerns and deserve an appropriate discount when considering valuation.

Conclusion

I’m always interested in companies looking to bring efficiency and scale to large, outdated industries.

Construction is one of the biggest laggards in the global digital transformation — still inefficient, costly, and fragmented.

QXO is uniquely positioned to fix that. And with a CEO who has already done this three times, it’s an opportunity worth watching — and maybe even acting on.

Valuation: Based on Beacon’s financials and management’s long-term goals, I’ve modeled 14–18% annual revenue growth, a 9% free cash flow margin, and moderate equity dilution, with a high discount rate of 12%. That leads me to a fair value estimate of $27/share.

With shares currently trading below $20, I’m rating QXO a buy and adding it to the Buy List today.

More By This Author:

Weave: Automating The Front Desk For Medical Offices
Buy BBB Foods
SPS Commerce: Connecting The Retail Supply Web