Of all the writeups I have done, none has gotten more pushback than $PRM which I appreciate. It is extremely important to consider the pushback so you fully understand your own thesis. I wanted to write about why I am still confident in Perimeter Solutions going forward.

Pushback 1: The founder’s agreement is egregious. That statement is absolutely true. The founders have a payment structure of 1.5% and 18% and it will take a significant portion of Perimeter Solutions IRR. Without the agreement, I believe Perimeter Solution projected IRR would be in the low-to-mid 20s. Factoring it in (as an investor should), their IRR should be mid-to-high teens, giving them a large enough margin for error to still make this a good

investment.

Pushback 2: Forest fires acres burnt historically grew at ~3.5% per year, Perimeter Solutions should not have HSD volume growth. While it is true that forest fires grow at ~3.5% per year, this does not account for two industry trends that are benefitting Perimeter Solutions. The Increased urbanization of California requires forest fires to be fought earlier and an

increase in aerial firefighting capacity allows for more flammable retardant. These two trends enable Perimeter Solutions to have the HSD volume growth which they have had historically.

Pushback 3: Perimeter Solutions will not be able to push pricing increases on the fire department due to PR pressure. Perimeter Solutions is projecting MSD pricing growth which is sizeable, but not crazy. Flammable retardant only accounts for 2-3% of the Federal and California Fire Fighting budget. I believe that both of these agencies will have bigger things to worry about than Perimeter Solutions’ modest price increases.

Pushback 4: The number of acres burnt is unpredictable and in a bad year Perimeter Solutions’ stock price could tank. This statement is true as well. If I was a PM managing others people’s money with short-term pressures this would probably be a concern for me. I am not and can give my investments as much time as I want for them to work out. It is the biggest advantage of being a retail investor and I plan on using it.

The original article is here for anyone interested.