Breakingviews: Wall Street’s finest take on the mighty sponge

The best pedigrees in banking have teamed up to sell Mister Car Wash. The $5 billion initial public offering of the company that shines up vehicles has amassed Goldman Sachs, Morgan Stanley and BofA Securities among its underwriters. That’s three of the top four shops globally according to first quarter figures from Refinitiv. And no wonder. The company has solid growth, good long-term trends fueling expansion, is simple to understand, and shines with profit. The risk, however, comes not just from car wash rivals, but the neighbor’s kid.

The company and its hawkers tell a solid story. The number of cars in North America has grown 9% in the decade ending in 2020. Consumers increasingly pay for the convenience of having someone else wash their car. And the company’s 344 automated washes have a nice environmental gloss compared to hand washing, as Mister Car Wash says it uses less water and disposes of chemicals safely.

Better yet, the company has a history of steady growth and is profitable. While the pandemic hit revenue in 2020, Mister Car Wash still totted up $595 million of sales over the 12 months ending on March 31. That’s annual growth of 17% since 2010. Net income over the last 12 months was $76 million, having grown 34% annually for the decade.

Assume this rate continues, the firm would have $102 million of earnings over the next 12 months. At the top of the indicated range, the market capitalization is over $5 billion, or nearly 50 times estimated earnings. That’s hefty, and assumes lots more growth to come.

Perhaps it can deliver. Wheezes such as a monthly subscription service, which has grown at a 42% annual rate over the past decade, should help. Customers are locked into paying a monthly fee, but the product is sticky. Those who have subscriptions go on average over 30 times annually.

Still, the barriers to entry are low. While the company says it isn’t just a car wash but an opportunity to “Inspire People to Shine,” at its most basic level, it competes with anyone with a bucket, sponge, and a bored kid willing to do the job for less. While Wall Street’s highly skilled smoother talkers are pros at putting a shine on such basic business models, that’s one blemish they may not be able to spit shine.