Avoid STRL due to high uncertainty as an early-stage beneficiary of the AI data center boom; long-term durability is unknown.

First, the foundation, Sterling Infrastructure, ticker symbol STRL. Before a single server ever arrives, Sterling does his dirty work. clearing the land, pouring the massive concrete pads, and running the underground utilities for giant data centers.

It gets paid to build the site, no matter which chip or AI company ends up winning. The ultimate sell the shovels business.

So now let's do the real work on three of these and find out if the price actually makes sense because a reminder an exciting story is only step one.

First, Sterling, our foundation company, and the numbers are eyepopping. Last quarter, its revenue jumped 90% and its profits more than doubled. Even better, 78% of its business now comes from that high value data center work, up from about half just a year ago.

And it's still sitting on a backlog of future work worth over $5.6 billion. So, it can actually see the demand coming in. Its core profits doubled and it's holding nearly a half a billion dollars in cash.

Best of all, most of that growth is real organic growth, not just from buying up other companies.

This is a real booming business, but the question is always the same. What's it worth if that data center boom ever cools off? So, let's find out. So, guys, most people go to the ticker symbol for the price.

I go to the market cap. That's the true price of the business, 15.7 billion. Now I next go to enterprise value 17 billion. That difference 17 billion minus 15.7 is 1.3 billion which is essentially their debt.

Now here's a little point I want to make. Their 5year average free cash flow is 300 million. Their one year is 360 billion. So they're selling for about three and a half times last year's free cash flow.

Not bad in terms of debt level. But for companies like this, I want to make sure I watch that debt level because if all of a sudden the business goes away, that debt does not go away.

They've got to be able to manage it through the booms and busts.

Next, high returns on capital. 26.7% last year, 18.5% the year before. Now look at this profit margin. 10-year profit margin 7 12% 5year 9.7 1 year 12. Why? The demand for their work is so high, they can probably increase their profits.

So, I would not bank on this staying up there forever. That's my personal opinion of this. I'm not banking on 12.5% from here on out.

And then next, guys, look at the revenue growth numbers. 18% a year for the last 10, 22 1.5% for the last five, 22.5% for the last three. And their last five years, they've also made about a net $850 million in acquisitions.

So, they are acquiring to grow, but it probably means they're also growing internally as well on a natural organic way.

Let's check out their eight pillars. All right, so shares are up slightly. Their 5-year price of free cash flow and 5year PE are very high, 53 and 73. And guys, their oneyear is pretty high. 43 times free cash flow, 36 times earnings.

Now, remember, those in and of themselves don't mean it's expensive. The question is, can they grow enough to justify that? If they're going to double their profits every year for the next 20 years, this is a screaming deal and you should buy it.

I don't literally mean that, but at the end of the day, if somebody came down and God came down and said, "This thing is going to double every single year for the foreseeable future," it's a no-brainer.

But if God came down and said, "Hey, this thing is going to decrease its revenue for 10% a year for the next 10 years." You would avoid this like the plague. That's the point I'm trying to teach here.

So, let's go to our stock analyzer tool where I don't think I've ever done this company before. So, let's make assumptions about the future. Remember, we use our stock analyzer tool to make assumptions about the future by combining the story with the numbers we've seen.

I'm going to do a 10-year analysis. So hopefully there'll be some boom and bust in there. So guys, I'm going to be a little bit more conservative than most people might be. I'm going to do five, 15, and 25% revenue growth.

The first thing I'm going to tell you is I immediately know this is going to have a very wide range at the bottom of my stock price. Why? Because we don't we don't know what's going to happen next 10 years.

And AI is booming right now, but how many booms last forever? None of them do. Eventually, it calms down. A lot of times you see a pullback in revenue. That's the question we need to figure out.

Next profit margin. I'm going to do six n and 12%. So I'm still gonna factor in the 69 and 12%. Even in the future that 12% high like maybe it just ends up being different and dominating and that 12% is there.

Next, what PE and price of free cash flow would I assign to this company 10 years from now? Well guys, the average on the S&P is 15 or 16. give a higher multiple for good companies and a lower one for bad.

This company has high returns on capital and it's in a growing industry. So, I'm going to give this a premium. I'm going to sit here and assign 16, 20, and 24. And then finally, guys, my mic market return of 9 and a half%.

This is not the return I actually want. It's to say, what is this business worth based on the market return? Now, I want to remind you guys that this is a young company in the early stages of a boom.

These are going to be very wide numbers. And for me, it's always hard to sit there and invest in companies that are this early on in the stage because I don't know what the future looks like for this industry.

So, I hit the analyze button. I scroll down. I have a low price of 120, a high price of 1,400, and a middle price of 440. Do you see how wide these ranges are? And it's because of those really wide range of revenue that I put in there.

So I want to remind everybody this is much wider range than a typical company like Google or Amazon or Microsoft where we can understand where their revenue is going to look like for the next 10 years.

And guys, if you told me 5 years from now this company was gone, I wouldn't be shocked. I'd be like, well, it makes sense. They're part of a big boom. The boom didn't let quite last and it went under.

I'm not saying it will, but that's why for me a company like this is probably something that I'm probably gonna move on to. Now guys, before I go on, let me change this though.

Let me change this to to fiveyear analysis. If you're just trying to get in and get out, hit the analyze button. 110 on the low side, 700 on the high side, 300 in the middle. So guys, time helps companies like this to be able to grow further and further.