Berkshire requires a 25–50% discount to intrinsic value before buying.
Buffett Quality Checklist
✓ROE >15% consistently (≥7 of last 10 years)
✓Free cash flow positive (≥8 of last 10 years)
✓Conservative leverage — Debt/Equity below 1
✓Revenue growing at CAGR >5%
✓EPS growing at CAGR >5%
10-Year Financial History — SEC EDGAR 10-K Filings
Year▲
Revenue▲
Net Income▲
FCF▲
Owner Earnings▲
ROE▲
Net Margin▲
LT Debt▲
Cash▲
2016
$2.2B
$229.1M
$335.0M
$248.0M
202.2%
10.2%
$1.4B
$312.4M
2017
$2.4B
$273.3M
$297.9M
$285.6M
68.1%
11.3%
$1.4B
$466.2M
2018
$2.7B
$434.9M
$408.7M
$468.1M
66.8%
15.9%
$1.4B
$283.8M
2019
$2.9B
$401.8M
$422.6M
$414.3M
53.0%
14.1%
$1.4B
$355.3M
2020
$2.7B
$314.3M
$443.2M
$345.2M
37.9%
11.6%
$1.4B
$480.4M
2021
$2.9B
$483.0M
$443.2M
$516.8M
63.6%
16.8%
$1.4B
$397.9M
2022
$3.3B
$458.0M
$395.5M
$489.1M
48.6%
14.0%
$2.1B
$288.0M
2023
$3.7B
$540.4M
$516.4M
$565.2M
41.0%
14.8%
$2.0B
$468.1M
2024
$3.8B
$597.5M
$582.9M
$621.6M
39.8%
15.8%
$2.0B
$503.8M
2025
$4.1B
$643.8M
—
—
31.1%
15.8%
$2.0B
$356.2M
Warren & Charlie
Buffett / Munger — quality, moat & valuation
Allegion plc (ALLE) — Investment Memo
🐂 The Bull Case (Warren's voice)
Switching costs are real and sticky. Once Allegion’s electronic access system is wired into a building’s doors, ripping it out costs months and millions. Proprietary software and hardware lock in customers — they don’t leave.
Recurring service revenue is the hidden compounder. Cloud access, maintenance, subscriptions — higher margin and growing. It’s still a small slice, but every dollar of service revenue increases customer lifetime value without incremental capital.
Honest numbers, steady growth. FCF equals net income — no accounting games. Revenue CAGR 7% over a decade, net income up 3×. The business is simple, predictable, and cash-generative.
At what price? This becomes genuinely attractive below $140/share (25% margin of safety on DCF of $184.66). At that price, you get a durable slow-grower with a real moat for ~14× FCF — acceptable for a non-compounder.
🐻 The Bear Case (Charlie inverts)
The kill shot: open-platform software. A well-funded rival builds an access-control system that works with any hardware. Switching costs collapse to zero. Allegion becomes a commodity lock supplier — margins compress to 5–8%, and the moat evaporates. Likely in 5–10 years.
Debt leverage is a structural weakness.$2.0B debt on $0.6B net income = 3.3× leverage. A commercial construction recession crushes revenue, but interest payments stay fixed. The 31% ROE is borrowed, not earned.
Incremental returns are fading. ROE halved from 53% (2019) to 31% (2025). Each new dollar of equity earns only ~13% incremental return. Management bought growth via debt ($700M in 2022) — the acquired capital didn’t move margins. This is a slow-growth cash machine, not a compounder.
25% margin of safety entry: $138.50/share — conservative entry for a narrow-moat business with debt.
50% margin of safety entry: $92.33/share — Buffett’s ideal, but unlikely unless recession or open-platform shock hits.
Current valuation: At roughly $150–160 (market range), it’s fair to slightly overvalued. No margin of safety exists. You’re paying full price for a non-compounding cash cow with mediocre capital allocation.
Verdict: WATCH
The moat is real but narrowing, the debt load is uncomfortable for a slow-grower, and management has not proven they can deploy capital wisely. Wait for a 20–25% discount to intrinsic value — anything above $140 lacks the margin of safety Berkshire demands.
Data sourced from SEC EDGAR XBRL filings (10-K only). For educational purposes — not investment advice.