Just this morning, one of my filters turned up a Swedish company I’d never heard of, Doro AB (OM:DORO). The stock has doubled over the past year and I’m not sure the future is quite rosy enough to justify investing at today’s price but wow, is this one for the watchlist.
Doro took a good idea—mobile and smart phones—and then found a niche it could lead. Doro makes so-called feature phones (traditional mobile phones) and, increasingly, smart phones targeted entirely at seniors. Its models offer big buttons, simple displays and icons, crystal clear sound, compatibility with most hearing aids and an assistance button, among other useful features. Without wanting to insult the tech savvy of an entire cohort, many of whom put me to shame, Doro’s latest smart phone is just the sort of thing that might get my mum and dad to finally give up their Nokias. It’s an interesting and under-served market segment.
Doro’s margins aren’t on par with Apple (what hardware provider is?). But it’s building a potentially interesting moat in a notoriously competitive sector. Doro’s revenue compounded at more than 25% per year between 2008 and 2015, just a notch lower than Apple’s and vastly better than most phone makers. The stock price has compounded at almost 50% annually since the end of 2008, outdoing the meteoric rise in Apple’s stock. It’s still a tiddler.
Of course, as a McKinsey consultant might say, execution is everything. Doro has clearly done a lot more right than just spot an interesting niche. But that idea was an essential prerequisite to its success. It’s not always the biggest and best ideas that win in business. Sometimes, taking a good idea and simplifying or otherwise improving it for a particular market sub-segment can be just as enriching, especially if you can find a segment where your competitors don’t want to go. This proves doubly so at a time when good ideas can go global so rapidly. Even an extremely narrow focus can add a lot of shareholder value.
Niche and then niche again (yes, all nouns can be verbed)—it’s a concept worth putting in your investing toolbox.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.