Picture the moment: a mechanic in a hangar, torque wrench in hand, holding a part that costs 35% less than the one the manufacturer wants installed. Every airline that ever made that swap was making a small bet: that the cheaper replacement wouldn't compromise the aircraft. HEICO has spent more than three decades reducing that perceived risk, one FAA approval at a time, until the bet stopped feeling like a bet at all and started sounding like the obvious call.

If you're looking at HEICO today, you're looking at the same trade from the other side. The stock trades at 58 times forward earnings. The question isn't whether HEICO is a great business. Almost nobody argues that anymore. The question is whether 35 years of derisking the aftermarket parts business has also derisked paying this much for the stock, and those are two very different kinds of risk.

The business the multiple is paying for

HEICO doesn't build new aircraft parts from scratch. It reverse-engineers the existing ones, gets the FAA to certify the copy as a Parts Manufacturer Approval (PMA) part, and sells it to airlines and MRO shops at 30 to 40 percent below what the original manufacturer charges. The company now holds close to 20,000 FAA-approved parts and adds 400 to 550 more every year through its Flight Support Group, which runs operating margins north of 20 percent.

That's the mechanism, and for this segment, mechanism is the whole moat. Every part requires its own testing, documentation, and certification cycle. That's slow and expensive to build and nearly impossible to shortcut, which is exactly why the field of credible competitors has stayed thin. The second segment, Electronic Technologies Group, makes defense and specialty electronics on a different moat entirely, built on program-specific engineering relationships rather than PMA certification, and gives HEICO a second growth engine that isn't tied purely to commercial flight hours.

The Mendelson family has run HEICO since 1990 and still owns roughly a fifth of it. Acquisitions are funded mostly with internal cash and debt, not stock, so the share count has stayed disciplined for 35 years. When HEICO buys a company, the sellers often keep a minority stake and stay on to run it. That's not a detail. That's the whole reason the acquisition pipeline still works after three decades: the people selling to HEICO trust what happens to their business after the deal closes.

The track record behind the multiple

Since 1990, HEICO has grown revenue from $26.2 million to roughly $4.9 billion. Net income went from $2 million to $690 million. Run the math on either number over 35 years and you get compounding in the high teens, year after year, through multiple recessions, a global grounding of the aircraft it services parts for, and a pandemic that stopped commercial flying almost entirely. Ten-year EPS growth has compounded at roughly 16 percent annually. The most recent quarter posted net sales up 25 percent and net income up 49 percent.

That track record is precisely why the stock costs what it costs. The market isn't pricing HEICO like an aerospace parts supplier. It's pricing it like a compounding machine that has never missed, because for 35 years, it hasn't. That's a hard number to argue with and an even harder one to bet against out loud.

What the market is charging you right now

HEICO trades near $367.58, at 65.6 times trailing earnings and 58 times forward earnings. The average analyst price target sits at $386.53, roughly 5 percent above today's price, which tells you Wall Street has mostly caught up to the story too. There's very little skepticism left to surprise you with.

Here's the honest read: at this multiple, you are not buying a mispriced business. You're buying the continuation of a 35-year streak at a price that assumes the streak continues on schedule.

The scenarios, with numbers

Five outcomes, roughly 18 months out, weighted by how likely each one feels from here.

HEICO ($367.58 today)

Probability-weighted expected return over the next 18 months: roughly -6%.

Two very different clocks

That negative number isn't a knock on the business. Chew on it for a second before you react to it, because it's what happens whenever the math is run on a great company at a rich multiple over a short window. This is the same shape of risk this newsletter flagged on ARM a few weeks back: when nearly everyone already agrees a business is excellent, the price has usually caught up faster than the next 18 months of results can justify.

But HEICO was never built to be judged on an 18-month clock, and that's the actual point of this piece. Nobody who has held this stock through the last 35 years got paid for correctly timing next year's multiple. They got paid for owning a business that compounded revenue and earnings in the high teens for three and a half decades, through a grounded aircraft fleet and a pandemic that parked half the world's planes, and never broke stride for long. The scenario table above answers "what happens from here in the next year and a half." It does not answer "what happens if you own this for the next fifteen years," which is the only question the Mendelson family has ever actually been running the business to answer.

Those are two different clocks, and confusing them is how you either overpay chasing a headline growth number, or talk yourself out of a business you'd have been glad to hold for a decade because the near-term math looked thin.

What this means for how you approach it

If you already own HEICO, the last three and a half decades are the reason to stay put through a multiple that makes you nervous. Multiple compression has happened to this stock before, more than once, and the business kept compounding underneath it every time.

If you're starting a position today, know exactly what you're buying: a genuinely rare compounder, priced by a market that has finally stopped underestimating it. That's not a reason to avoid it. It's a reason to size it like what it is, and to do your buying on the bear-case days, not the days it prints another quarter like the last one. There's a stale, secondhand feel to chasing a stock the day after a headline beat, and a much cleaner one to buying it when the room has gone quiet.

The next earnings print will move this number one way or the other. Track it against your own numbers, not the headline growth rate, and you'll know within a quarter or two which of the five scenarios above the business is actually walking toward.

This is not investment advice, and nothing here should be read as a recommendation to buy or sell this stock. The scenarios and price targets are illustrative, not predictions. Do your own research, size positions to your own risk tolerance, and talk to a licensed advisor before making any investment decision.

www.strategysprints.com

Happy hunting.

Simon & The Sprinters