An Overlooked Razor-Razorblade Model at 7× Free Cash Flow

High-margin royalties, niche tech

Investors' appetite for businesses with a razor-razorblade model is high, and rightly so. A growing customer base generates increasing recurring revenue from consumables, which typically have a high gross margin. While this business does not sell consumables, it still enjoys the benefits of a similar dynamic, selling its hardware upfront and collecting high-margin royalties later on.

Here are some of the quirks:

• A growing installed base and industry tailwinds will significantly increase margins and earnings in the coming years.

• An activist on the board is pulling the strings from behind, in alliance with us minority shareholders.

• A compelling valuation of roughly 7x NTM free cash flow for a highly cash-generative business.

A word of caution, the stock is pretty illiquid and has an average daily trading volume of roughly CA $100,000.