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
$10.1B
$606.0M
$740.0M
$544.6M
33.7%
6.0%
$1.8B
$274.0M
2017
$10.4B
$586.0M
$820.0M
$589.7M
34.7%
5.6%
$2.2B
$327.0M
2018
$11.2B
$782.0M
$818.0M
$800.0M
40.7%
7.0%
$2.1B
$538.0M
2019
$11.5B
$849.0M
$821.0M
$838.0M
45.8%
7.4%
$1.9B
$360.0M
2020
$11.8B
$695.0M
$926.0M
$667.0M
38.0%
5.9%
$2.4B
$585.0M
2021
$13.0B
$1.0B
$682.0M
$961.0M
55.7%
8.0%
$2.4B
$241.0M
2022
$15.2B
$1.5B
$1.1B
$1.5B
63.4%
10.2%
$2.3B
$325.0M
2023
$16.5B
$1.8B
$1.6B
$1.7B
58.7%
11.1%
$2.3B
$660.0M
2024
$17.2B
$1.9B
$1.6B
$1.7B
56.8%
11.1%
$2.8B
$1.0B
2025
$17.9B
$1.7B
$1.3B
$1.4B
45.7%
9.5%
$2.5B
$585.0M
Warren & Charlie
Buffett / Munger — quality, moat & valuation
W.W. GRAINGER, INC. (GWW) — Investment Memo
🐂 The Bull Case (Warren's voice)
Moat durability: Grainger is the undisputed king of MRO distribution – 1.7 million SKUs, next-day delivery, and deep procurement system integrations create real switching costs that no startup can replicate overnight. The habit of buying from Grainger is baked into thousands of maintenance managers’ routines.
Exceptional economics: Even after the 2025 margin dip, operating margin of 9.5% and ROE of 45.7% are world-class for a distributor. The business generates $1.3B in free cash flow annually – a cash machine that funds both dividends (10% growth) and aggressive buybacks.
Attractive entry price: At $565/share (DCF intrinsic value), the market is pricing in zero moat improvement. If Grainger stabilises margins at 10% and grows FCF at 5% (not 7.2%), intrinsic value is still ~$480. A 25% discount ($360) would be a no-brainer for a business with this scale and customer stickiness.
🐻 The Bear Case (Charlie inverts)
Scenario 1 – Digital disintermediation: Amazon Business and McMaster-Carr’s superior e-commerce commoditise MRO procurement. Grainger’s next-day delivery becomes table stakes; customers switch on price alone. Gross margins compress from 38% to 25% over five years – operating income cuts in half.
Scenario 2 – Structural margin decay: The 2025 margin collapse (160bps in one year) is not a blip but a new normal. ROE drops below 30% as working capital demands drain cash. The FCF gap ($0.4B per year) widens, forcing cuts to buybacks and dividends.
Most likely over what timeframe? The digital threat is real and already visible – Grainger’s pricing power is eroding. Within 3-5 years, margins could fall to 8% or lower, permanently impairing intrinsic value below $400/share.
50% margin of safety entry: $283/share (Buffett's ideal – prices in 3% perpetual FCF decline)
Current market price: ~$950/share (as of writing). That’s 68% above intrinsic value. Expensive by any measure.
Verdict: PASS
At $950, the market is paying Grainger for decades of pristine margins that the numbers show are already crumbling – the moat is narrowing, not widening. The FCF shortfall, declining ROE, and digital disintermediation make this a watchlist stock, not a buy. Pass until the price offers a genuine margin of safety – ideally below $400/share.
Data sourced from SEC EDGAR XBRL filings (10-K only). For educational purposes — not investment advice.