CTOS: A High P/E Stock I Actually Want to Buy

Custom Truck One Source (CTOS) trades at more than 33x forward earnings.

Its peers trade closer to 11x.

And… I still want to buy it.'

The reason starts with something I've spent most of this month warning you about:

Data centers.

Every new data center needs much more than chips and servers.

It needs:

And the specialty vehicles required to actually build and maintain all of it.

That's where CTOS comes in.

The company manufactures, rents, and sells the trucks used across utility, grid, telecom, and infrastructure projects throughout the country.

That chart above is probably the most important one in this whole report, rental utilization is sitting around 82%.

Rates are near decade highs.

Margins are pushing records.

In other words, there aren't many trucks sitting around waiting for work.

The data-center buildout, electrification spending, and broader infrastructure cycle are keeping them busy.

Normally, this is where I start getting nervous, as peak cycle earnings and profit excess tend to drive management greed.

As you saw in the memory capital cycle peak research, this is usually where debt gets added to the balance sheet and overinvestment into more capacity ruins margins.

CTOS is going in the opposite direction.

Instead of throwing money at more capacity, management is selling older equipment, pushing newer assets toward the rental fleet, and turning the current demand boom into free cash flow.

Then they're using that cash to pay down debt.

They're participating in the infrastructure boom without betting the balance sheet on it lasting forever.

That's what caught my attention.

Especially now that PMI and retail sales data are beginning to point toward another potential tailwind from trucking and transportation.

And if CTOS can keep utilization elevated, expand rental economics, reduce leverage, and then catch a broader transportation recovery on top of the data-center buildout...

The earnings underneath that 33x multiple may look very different a few quarters from now.

That's the bet I'm working through today.

Is CTOS actually expensive?

Or is the market paying up early for a business whose earnings are about to catch up?

More importantly...

What price would make me pull the trigger?

CTOS: A High P/E Stock I Actually Want to Buy.