One of my favorite movies growing up was It’s a Mad, Mad, Mad, Mad World. Who can argue with an ensemble cast of comedians, headlined by one of my favorites, Jonathan Winters. Unfortunately, it seems today we live in the world described by the title of the film, minus the comedy.
While you can’t turn on the news, or read a newspaper, without being inundated with chaos in the streets, either here or elsewhere in the world, you can own the stock of a company that makes the world safer for our service members and first responders. Cadre Holdings (CDRE) is in the business of providing gear used by our firemen, police officers, and soldiers.
CDRE makes what is known as “safety and survivability” gear, which includes everything from a police officer’s duty belt, body armor and holster, to high tech blast resistant EOD (Explosive Ordnance Disposal) outfits for bomb removal. The company is the market leader in the majority of the products it offers, and has been successful in doing bolt-on acquisitions in the tight knit first responder community.
A couple of items stand out about Cadre’s business model that makes it particularly compelling. First, the company is tied into a continual refresh cycle. Gear consistently wears out on a predictable multi-year cycle and requires replacement. This provides a steady stream of income business that does not get disrupted by technological leaps. (As in they are not competing with the Apple’s (AAPL) and Microsoft's (MSFT) of the world, nor are a million startups nipping at their heels.)
Second, funding for the equipment Cadre provides is on the upswing for a number of reasons. The “defund” movement is waning, and becoming a tailwind in the current election cycle. Large U.S. cities are increasing policing budgets, and history shows that law enforcement budgets during recessions (if we do have one) continue to rise.
And, if you haven’t noticed, there has been an increase in global policing and military activity (especially in the European region, with defense budgets there on the rise) that shows no signs of retracing any time soon.
And third, Cadre, which only went public in 2021, has identified its unique lane, and has shown the ability to grow not only organically but through very strategic acquisitions. CDRE has well defined target criteria, for example they only look at companies that are brand leaders, asset light, and with no major competition.
Their acquisitions of Cyalume Technologies, a 60 year old business in the chemical light solution (light sticks, infrared devices for U.S. and NATO forces) and Radar 1957, an over 60 year old company in the holsters and duty belts segment, demonstrate their strategic laser focus.
And, the numbers bear out the business model. In their most recent quarterly report, gross margins increased over 5% to 41.9% YoY, while the adjusted EBITDA margin was 18.8%, the highest the company has achieved since it went public in November of 2021.
Commenting on the quarter, CEO Warren Kanders said Cadre is, “on track to deliver record full year net sales in 2023 and [is] ideally positioned to capitalize on organic and inorganic opportunities ahead to further enhance our market leadership over the long-term. As we continue to actively evaluate a robust pipeline of potential M&A transactions, we are steadfast in our patient and disciplined approach and focus on high margin companies with leading market positions and strong recurring revenues and cash flows.”
Cadre has an overall A rating in our POWR Ratings schema, where it is performing better than almost 98% of the companies in our database. The company has its two highest scores in the Quality and Sentiment categories.
Cadre is in a niche market that is in (unfortunately) growing demand, has a steady business cycle to sell into, and is building on its success both organically and through strategic M&A activity. This fairly new public company is on track for a long and profitable history in the turbulent times we live in.
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CDRE shares were trading at $28.32 per share on Thursday afternoon, down $0.34 (-1.19%). Year-to-date, CDRE has gained 42.13%, versus a 13.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Steven Adams
After earning a law degree cum laude with a focus on securities law, Steven worked as a Nasdaq market maker for a large broker dealer, and then as a trader for an arbitrage focused proprietary hedge fund. He subsequently worked as a consultant for a Fortune 500 consulting firm serving both government and commercial clients, including the NYSE, Prudential, FDIC, and NASA.
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