A quality company from Japan

It's not Nintendo, Toyota or Sony. This company has over 50% market share in its industry with growing demand for its products. Welcome to Shimano uncovered.

For cyclists and fishermen, Shimano is a household name. For investors? Not so much. This while Shimano is a near-monopoly and does multiple things better than the competition. Its balance sheet is rock solid!

To write this article and do the research for our premium members, we spoke with multiple bicycle specialists, repairmen, and shop owners. In this article you’ll read about three things Shimano does better than their competitors.

Before we dive in: we’re celebrating our one-year anniversary, and we want to treat you! Only this weekend, you can get TDI-Premium at 21% off.

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Now, let’s break down three key strengths that set Shimano apart from their competitors.

1. Net cash = Optionality

Shimano just released its FY 2024 results, revealing a net cash position of 530 billion yen ($3.5 billion), which accounts for over 25% of its market value.

A strong net cash position isn’t just about earning interest or avoiding debt repayments. It provides flexibility. Shimano can reinvest in new technologies, execute opportunistic share buybacks, or pay a special dividend. More importantly, it acts as a buffer during economic downturns, which are inevitable in the bicycle equipment industry. While competitors struggle to stay afloat, Shimano can continue expanding by increasing capacity or investing in R&D.

The downside is that cash earns little return. In our view, the company could generate better yields by reinvesting in the business, given its 30%+ operational ROE, or returning capital to shareholders, allowing them to deploy it at higher rates.

Cash & Equivalents Shimano | Created by The Dutch Investors

2. A Family-Led Business

Shimano is an owner-operator company. The current CEO, Yozo Shimano (76), is the grandson of founder Shozaburo Shimano and has been with the company for over 50 years. Yes, you read that right: over half a century of experience.

The family leadership continues with Taizo Shimano (58), the company’s president and Yozo’s nephew. He has spent more than 30 years at Shimano in roles such as head of fishing operations, factory manager, and head of the bicycle components division.

With significant skin in the game, the Shimano family ranks among the 20 richest in Japan, with a net worth of $2.4 billion (Forbes). Taizo Shimano has even increased his stake in Shimano in recent years.

3. Focus

We’re not fans of companies that operate as conglomerates. More often than not, when businesses stray from their core, they fail. Of course, there are exceptions like Berkshire Hathaway and Amazon, but they are rare.

The problem with sprawling conglomerates is a lack of focus and clarity. Managing unrelated businesses creates inefficiencies, and sometimes confusion for investors. General Electric, ITT Corporation, and Tyco International are all prime examples of once-mighty conglomerates that lost their way. Even Philips, once a Dutch powerhouse, has struggled to stay relevant.

We prefer specialized businesses that dominate their niche. Companies like ASML, Hermès, Duolingo, and Ryanair immediately come to mind.

Shimano once expanded into the golf industry but later divested to focus entirely on cycling and fishing. This kind of discipline is rare. Instead of pouring billions into uncertain ventures (like Meta is doing right now with Reality Labs), Shimano sticks to what it does best.

We hope we have given you a clearer view of a lesser-known but high-quality business.

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