Title: Perimeter Solutions: Copying a 3000-Bagger
Show: Compounding Quality (Substack, paid post — compoundingquality.net)
Guest: Pieter Slegers / Team Compounding Quality (author; byline "Compounding Quality")
Date: 2026-05-28
URL: https://www.compoundingquality.net/p/perimeter-solutions-copying-a-3000
Length: written post — no timestamps
Note: Paid-subscriber post captured via Stephen's logged-in session. Body text verbatim; UI chrome removed. Fiscal.ai, investor-presentation and proxy-statement panels noted inline as [Image — ...]. A "Small Cap of the Month" / Tiny Titans piece. The Total Quality Score table is published as an image at the end and the per-metric grid was not retrievable from the paid post; the article does not state the resulting score in text either.

Do you remember our analysis of TransDigm?

The stock has risen by +4,800% (!) since 2006.

But what if I told you there's a smaller, cheaper version you've never heard of?

Meet Perimeter Solutions.

Can Perimeter become as successful as TransDigm? Let's find out.

Perimeter Solutions is an example of a potential Tiny Titan.

Partners of Tiny Titans know what I'm talking about.

Tiny Titans is not for everyone.
You need to apply to see whether there is a great fit.

1. How does Perimeter make money?

Perimeter operates in two segments:

1. Fire Safety (74.9% of revenue)

Have you ever wondered what that red product is that firefighters use?

It's not just red water. It's fire retardant.

Fire retardants are not used to put out wildfires.
Fire retardants are used to prevent the wildfire from expanding.

Everything on which you put the fire retardant becomes inflammable.

It buys firefighters time by slowing the spread of the fire.

This is also why it's red: pilots need to see where the product has already been spread.

Fire retardants are mainly used in natural environments, but sometimes also for private use around houses.

[Image — Fire retardants stop wildfires from spreading]

Perimeter also sells a special type of fire retardant called Fortify.

This can be used as a preventive measure against fires.

Typical fire retardants are flushed away once it rains. This is not the case with Fortify.

Fortify is an uncolored retardant (it's not made red like other retardants) and has extended durability.

This makes Fortify interesting in industrial settings to protect expensive assets from fires.

Next to fire retardants, Perimeter also sells specialized foams.

When you mix these foams with water, you get a combination that extinguishes fires more quickly than water alone.

These foams are also used in situations where it's hard to extinguish the fire with water only.

Think about oil that's on fire.

A wide moat with monopoly outcomes

In its Fire Safety segment, Perimeter has a very wide moat based on two pillars:

A high barrier to entry: Competitors need to go through years of expensive lab testing, safety checks, and field trials to be able to sell retardants

Large scale: Speed and reliability are everything when every minute can cost lives

Let's go a bit deeper into why scale is so important.

When it comes to wildfires, every minute counts.

It could save lives, prevent permanent damage to nature, the destruction of homes, ...

The retardant should always be close to potential fires as a result.

Perimeter owns critical airbase infrastructure that makes this possible.

[Image — Source: Perimeter UBS Global Materials Conference Presentation]

In addition, they have a large fleet of mobile bases.

Think about large tankers on trucks. It delivers retardants to the most remote locations.

Perimeter says that the average mobile base in its fleet costs $2 million.

[Image — Source: Perimeter UBS Global Materials Conference Presentation]

Perimeter has 9 manufacturing units.

It also operates a large distribution network and a mobile fleet. In addition, it owns airbase infrastructure.

The company also holds over $100 million in fire retardant inventory to ensure a large safety stock.

In this setting, you can't tell a customer fighting a major wildfire that you'll start production tomorrow and deliver retardant in a few days.

Large safety stocks are required at all times.

It's clear that it would take enormous investments over many years to come close to what Perimeter offers: fast deliveries and high reliability.

It reminds me of what Warren Buffett once said about Coca-Cola:

"Give me $100 billion to disrupt Coca-Cola, and I would give it back to you because it's impossible" - Warren Buffett

With $100 billion, I think Perimeter could be disrupted, but the point is that you probably need several hundred million dollars to start competing with Perimeter.

Due to the chemistry, you also can't mix retardants.

This means Perimeter's customers can't gradually transition into a new supplier.

It makes the moat even wider.

The result of this massive moat? Perimeter has a monopoly.

It's the only company that supplies fire retardants to the U.S. Forest Service.

Interestingly, fire retardants are only 3% of overall fire suppression costs.

This is a very attractive characteristic...

Having a crucial product that only makes up a fraction of the total costs.

Three things give Perimeter enormous pricing power:

Their product is crucial

They have a monopoly

They represent only a small share of total costs

Perimeter has raised its prices by 3-4% per year in the past.

2. Specialty Products (25.1% of revenue)

The Fire Safety segment is growing in an attractive end market.

But there's a downside: it's cyclical.

Busy fire season? Top year. Quiet fire season? Weaker numbers.

This makes the specialty segment interesting.

It makes Perimeter less dependent on the fire activity.

This became clearly visible last quarter.

As you can see in the chart below, there has historically been a strong correlation between the number of acres burned and the results of Perimeter.

But in 2025, Perimeter's results were up 18%, while it was a weak fire season.

This is partly because of the Specialty Segment.

[Image — Source: Perimeter Q4 Presentation]

Under this specialty segment are several operating companies:

Medical Manufacturing Technologies (MMT) makes precision machinery that is used to manufacture medical devices

Intelligent Manufacturing Solutions (IMS) makes printed circuit boards

Perimeter also sells an additive that goes into oil called P2S5

These companies operate far away from Perimeter's core business.

Usually, if a company starts to do acquisitions outside its core business, it would be a major red flag.

Especially if the core business is so interesting.

This is not the case for Perimeter.

Why? The exceptional track record of management.

2. Management

This is where things get interesting.

You won't find many companies with more competent people than Perimeter.

Let's go over the three key people:

Nick Howley

Will Thorndike

Tracy Britt Cool

Nick Howley

Howley is the co-founder and former CEO of TransDigm.

He founded the company in 1993 with $25 million.

Today, TransDigm is worth $70 billion.

Howley is currently the Co-Chairman of Perimeter.

We recently wrote an extensive analysis of TransDigm.

The similarities between TransDigm and Perimeter are striking:

Mission-critical input representing a small fraction of total costs

TransDigm makes essential aircraft parts that represent only a small share of an aircraft's total cost

Perimeter's fire retardants are essential for wildfire response yet account for only about 3% of total suppression costs

Highly regulated markets create a high barrier to entry

TransDigm's aviation components need Federal Aviation Administration (FAA) approval

Perimeter's fire retardants require rigorous lab and in field testing

And ... it's the same people

Interestingly, Howley also took some of TransDigm's most talented operators to Perimeter.

5 of the 9 Perimeter directors have a link with TransDigm. Among them is a former COO and Vice President of M&A.

You can see Perimeter as a smaller version of TransDigm that isn't limited to the aviation market.

It's a sector-agnostic TransDigm.

Will Thorndike

Will Thorndike is known as the author of The Outsiders, a book often considered "the bible of capital allocation."

This philosophy is also visible in Perimeter's history.

Perimeter IPO'd in 2021 at a share price of around $14.

Just a couple of years later, in 2023, the stock was trading at roughly $3.30, down over 75%.

Management took this opportunity with both hands, buying back 12% of the company's shares across four transactions over a few quarters.

It's quite unconventional for a public company to repurchase 12% of its shares within just a few quarters.

It's a testament to the capital allocation skills of Thorndike and Howley: acting aggressively when the right circumstances arise.

In hindsight, these repurchases created significant shareholder value.

Today, Perimeter trades at around $22. The average price of these buybacks was $6 per share.

Perimeter's CFO made an interesting comment on these buybacks:

"While many companies have systematic share repurchase programs, our view is to repurchase shares when we believe our equity trades at a meaningful discount below our intrinsic value and when repurchases would not preclude higher potential IRR investments."

Next to buybacks, Perimeter also has an unusual acquisition strategy.

Instead of acquiring whole companies, they often buy product lines.

In the latest earnings call (Q4 2025), an investor asked Perimeter's CEO about these product line acquisitions.

This was the CEOs response:

"If we say that we won't deploy capital without seeing at least a 15% long-term IRR into any form of capital allocation, and we're telling you the IRRs on these product lines are nicely higher than other forms of capital allocation, I think you can safely infer that the IRRs are very attractive on these acquisitions." - Haitham Khouri, CEO.

With Thorndike and Howley as Co-Chairmen, it is fair to assume that Perimeter will make the best capital allocation decisions for shareholders.

Furthermore, it's interesting to see that Thorndike has been buying more shares recently on the open market.

Tracy Britt Cool

Tracy Britt Cool is another director at Perimeter. She is often described as a "Buffett protege".

Cool has worked 11 years at Berkshire Hathaway, of which 5 years were at the headquarters.

Knowing that only about 20 people work at Berkshire HQ, she worked very closely with Buffett and Munger.

"At headquarters, we have no legal department, no investor relations department, no public relations department... We have about two dozen people in Omaha." - Warren Buffett

Insider ownership and incentives

It's good to see that Howley, Thorndike, and Khouri (Perimeter's CEO) own a large stake in the company.

[Image — Source: Perimeter Proxy Statement]

Perimeter has one of the most impressive Board of Directors we have ever seen.

Unfortunately, this quality also comes with a serious cost.

Howley, Thorndike, Cool, Khouri, and Raj (another director) participate in a lucrative compensation plan:

The fixed component: Until 2027, the Founders receive 2,357,061 shares annually (1.5% of Total Shares Outstanding). These shares are split among the Founders.

The variable component: Every year, they receive 18% of the Market Cap appreciation. The variable component runs until 2031. This compensation is paid partly in cash and partly in stock.

Because Perimeter's share price more than doubled in 2025, the Founder's Advisory Fee came in at a massive $435 million expense while revenue in 2025 was 'only' $653 million.

Keep in mind that 2025 was unusual (the share price doubled) but it gives you an idea that compensation of these exceptional directors is also exceptionally high.

3. Fundamentals

Let's start with historical revenue growth.

This metric has been growing by 18.2% per year.

Take a look at the last two years.

Revenue shifted into a higher gear: growth of no less than 42.3% per year!

The reasons for this acceleration?

There are several.

Contribution of the IMS acquisition: IMS was acquired in December 2024.

Investments in larger airplanes: California has invested in larger airplanes to fight wildfires. Larger planes can carry more fire retardant which increases demand for Perimeter's products.

Increased fire activity: 2024 was a good year in terms of fire activity. This "good" is from Perimeter's perspective.

Insurers aren't willing to insure: Affordable fire insurance is becoming scarcer, as rising costs push insurers to limit renewals, increase premiums, or require preventive measures like Fortify. This means companies invest more in fire safety.

With the MMT acquisition and continued organic growth, Perimeter is expected to exceed $800 million in revenue in 2026.

This will mark another year of +20% growth.

In terms of margins, we must be careful.

The variable compensation makes Net Income fluctuate a lot.

A profit measure that doesn't get influenced by the compensation is the Gross Margin.

As you can see Perimeter's Gross Margin is very high (our hurdle is 40%).

And what's even better seeing?

It has been rising. A rising Gross Margin often indicates strong pricing power.

If we back out the Founders Advisory Fee, Perimeter's Net Income Margin in 2025 would have been 35.0%.

This indicates that the business quality is high.

But keep in mind that the High Founders Advisory Fee is a serious cost for shareholders that cannot be neglected.

If we look at the Balance Sheet, Net Debt/FCF stands at 1.8x.

Interestingly, none of this debt should be paid back before 2029.

Finally, CAPEX/Revenue stands at 4.9%. This indicates that Perimeter is a capital light business.

Apart from the compensation, Perimeter's numbers look healthy: the company is growing at attractive rates, margins are high and improving, leverage is limited and it is capital light.

4. Valuation

1. Comparison with historical Forward P/S

A first valuation tool is a comparison of the current valuation with historical valuation levels.

It's like checking the temperature of the water with your feet before diving in.

Normally, we look at the Forward P/E but because the Founders Fee makes Earnings fluctuate a lot, we look at the Forward P/S for Perimeter.

As you can see, Perimeter currently trades significantly above its historical Forward P/S valuation multiple.

2. Normalized earnings

Valuing Perimeter more precisely than the Forward P/S is not so easy. This is due to the variable compensation.

But let's do our best to get a high-level understanding.

In 2025, Perimeter made a loss of $206.4 million.

This is because the Founders' advisory fee came in at a massive $435 million expense.

The expense was so large because Perimeter's shares more than doubled in 2025.

This gives a distorted view of reality. In normal years, Perimeter's shares aren't going to double.

Let's do some calculations to see what Perimeter would make in a more normal year.

If we take the loss of last year ($206.4 million) and add the Founders advisory fee back ($435.1 million), we arrive at a profit of $229.3 million.

Let's say that Perimeter can grow organically at 10% in 2026, which translates into $252.2 million in profits for 2026.

We now take into account the large MMT acquisition. In 2025, MMT made $50 million in EBITDA.

If we make the following assumptions:

Depreciation = 5% of total revenue

Interest expense of $10 million

Tax rate of 20%

10% growth for MMT

We arrive at a $29.5 million profit for MMT in 2026.

So far, this puts us at $281.7 million ($252.2 + $29.5) in profits excluding the Founders' advisory fee, which is clearly an expense for shareholders.

In more normal years, we estimate that the Founders' advisory fee will be close to $100 million. This of course depends on how well Perimeter's stock performs.

Taking this into account, we arrive at Perimeter's normalized earnings: $181.7 million.

This means Perimeter currently trades at an 18.5x forward earnings multiple. We think this is a fair valuation for the quality you get.

5. Putting it together

Let's go over the highlights of this Perimeter pitch.

Should you consider buying the company?

At the core of Perimeter lies a monopoly with a wide moat in a growing end market

The company is run by some of the world's best capital allocators

As a sector-agnostic acquirer, the runway is substantial

For a company of Perimeter's quality, the valuation looks fair

The compensation of the Founders can be seen as an orange/red flag

It's a bit disappointing to see someone who worked alongside Buffett for five years engage in this kind of compensation.

[Image — Buffett's compensation. Source: Berkshire 2025 Proxy Statement]

Finally, let's give Perimeter a Total Quality Score:

[Table image — the Total Quality Score grid. Per-metric scores and the total were not retrievable from the paid post.]

That's it for today!

Perimeter Solutions is an example of a potential Tiny Titan.

Everything In Life Compounds
Team Compounding Quality