Thou Shalt Not Steal

LoJack Corp. (LOJN)

People will always be inclined to steal, fornicate and envy. A business model that thrives on the violation of one of the Ten Commandments is intriguing. And when you combine that with a leading market position, strong returns on capital, international growth, and a reasonable valuation of 9x free cash flow, this presents a lollapalooza-like effect: factors (social, psychological, and economic in this case) that "are all operating in the same direction."(1)

I quote from the business overview of the MD&A section of the company's 2006 10k: “We are a leading global provider of technology products and services for the tracking and recovery of valuable mobile assets. Our proprietary technology, wireless network and unique integration with law enforcement agencies provide an effective means for tracking and recovery of stolen vehicles and construction equipment." Brevity is good.

LOJN earns 83% of revenues directly through networks of new and used dealers. The systems have a 90% recovery rate in the US and are integrated directly with law enforcement to track and recover equipment, vehicles, motorcycles (and now cargo and laptops). Insurance premium discounts are also mandated or offered in some foreign markets and some states within the US. Growth is a tale of domestic vs. international: while Q4 international revenue is up 59% abroad, it's down 8% domestically on a 13% decline in unit volume--largely attributable to the state of the current domestic consumer and decline in car and light truck sales.


While the current domestic environment is challenging, LOJN has a super-clean balance sheet, strong growth, spins off excess cash, a valuable brand and sound economics. The 1.19M cars stolen in '06 in the US speak volumes of how people routinely break the Ten Commandments. LoJack has a nice business built around that.


Quick Snapshot:
Pricing power: yes
Oligopoly: yes
Recurring revenue: yes
Brand strength: strong
ROIC > Cost of capital: yes
Balance Sheet: A+

Disclosure:

none as of time of post

(1) Charlie Munger