Why Waste is NOT a Waste of Time
Top-Down Analysis Part III, sector II
Remember when waste management was just about collecting garbage and dumping it in a landfill? Well, those days are long gone. Today, the Environmental & Waste Services sector is buzzing with innovation, transforming how we handle waste.
Recap: How We Got Here
If you’re new to this series—first of all, welcome. Second, let’s get you up to speed.
We’re conducting a top-down analysis, a structured approach where we start with the big picture—identifying major global trends—before narrowing it down to specific sectors and, ultimately, one investment-worthy company.
In Part I, we identified three megatrends shaping the future: Digitalization, Aging Demographics, and Sustainability. These aren’t just buzzwords; they represent fundamental shifts that will drive economic growth for decades.
In Part II, we used a structured, data-driven approach to determine which sectors within these megatrends offer the best investment potential. We landed on three finalists:
Semiconductor Equipment (Digitalization)
Environmental & Waste Services (Sustainability)
Healthcare Support Services (Aging Demographics)
Also don’t miss out on our extra part of this series!
In Part III, we’re diving deep into these three finalist sectors—one at a time. Yesterday, we examined Semiconductor Equipment, a high-margin, high-barrier industry at the core of modern technology. While its potential is undeniable, the combination of geopolitical risks, customer concentration, and cyclicality led us to eliminate it from contention.
That brings us to today’s focus: Environmental & Waste Services, a sector often overlooked but undergoing major innovation as the world shifts toward sustainability. And tomorrow? We’ll wrap up this stage of our analysis with a deep dive into Healthcare Support Services—don’t miss it.
Beyond the Garbage Truck
Waste services is a far broader sector than you might initially think. It’s not just about waste collection and processing—you know, the garbage trucks picking up your trash. No, it goes way beyond that.
This sector encompasses a wide range of activities. Recycling has expanded far beyond plastic and paper, with advanced processes now recovering valuable materials from batteries, metals, and even industrial byproducts.
Water and wastewater management have become critical, ensuring that industries and cities can reuse and purify water efficiently.
Even contaminated land is being restored through soil remediation efforts, highlighting how waste services are no longer just about disposal but about creating circular solutions that benefit both businesses and the environment.
Additionally, the increasing complexity of environmental regulations has fueled the growth of advisory and engineering services. These firms help businesses navigate sustainability requirements, optimize waste management strategies, and implement cutting-edge technologies to meet stricter environmental standards.
The Future of Waste Services
As awareness grows in the West that we can’t just dump our waste in nature or burn through fossil fuels without consequences, this industry has also been innovating like crazy. The push for sustainability, stricter regulations, and the need for more efficient resource management have driven some of the most significant advancements in waste services.
The waste management industry is in the midst of a tech-driven transformation, with IoT and AI leading the charge. Picture smart trash bins that don’t just sit there but actively report when they’re full, ensuring waste is collected before it overflows. RFID tracking streamlines pickup routes, while AI steps in to predict waste patterns, sharpen sorting precision, and fine-tune truck navigation to slash costs and emissions. Even maintenance is getting smarter—predictive algorithms now prevent breakdowns before they happen.
Recycling is also evolving fast, with companies like for example TOMRA leading the way. Their smart sorting technology uses AI to quickly identify and recover materials that cannot be sorted with traditional technology, reducing waste contamination and improving recovery rates.
Lastly, we have bio-remediation. This “innovation” (It’s from the sixties really) is gaining commercial traction as an innovative way to clean up pollution using natural processes. This method employs microorganisms, fungi, or plants to break down contaminants in soil and water, effectively restoring polluted environments. As industries face stricter environmental regulations, bio-remediation offers a cost-effective and sustainable alternative to traditional cleanup methods.
Garbage Gains and Wasted Potential?
One of the biggest strengths of the waste management and environmental services sector is its anti-cyclical nature. No matter the economic climate, waste still needs to be collected, water still needs to be treated, and contaminated sites still need remediation. This makes the industry incredibly resilient, with demand only increasing due to urbanization, climate change, and ever-stricter environmental regulations. Governments continue to push for better sustainability practices, keeping the sector stable and ensuring long-term growth. However, the degree to which the sector is anti-cyclical varies by subsector. Specialized environmental services, such as high-tech recycling and site remediation, can be more vulnerable to economic downturns.
Another major advantage is the huge innovation potential. For a long time, this industry saw little technological disruption, but the urgency of climate change has lit a fire under its transformation. AI-powered waste sorting, IoT-enabled collection systems, and cutting-edge bio-remediation methods are revolutionizing efficiency. AI, in particular, has massive potential to streamline operations, lower costs, and maximize sustainability efforts.
But innovation doesn’t come cheap, which ties directly into one of the sector’s biggest weaknesses: capital intensity. If you were paying attention in Part II of our top-down analysis, you may have noticed that this sector met the 10% EBIT growth threshold mainly due to high reinvestment rates. Waste processing, sanitation, and recycling require heavy infrastructure, and new technologies don’t come cheap. They take time to pay off, making this a tough field for newcomers and even established players looking to expand.
Another challenge? Regulation isn’t always your friend. While sustainability goals drive industry growth, not every policy change benefits waste management companies. Just look at China’s 2018 ban on plastic waste imports—it sent shockwaves through global recycling markets. Similar shifts, from restrictions on waste imports to changes in emissions standards, can throw a wrench in business models. Regulation largely supports industry expansion, but it’s a double-edged sword that requires careful navigation.
Conclusion: An Overlooked Gem That Deserves More Attention
Despite playing a crucial role in modern economies, the waste management sector continues to fly under the radar for many investors. And that’s surprising—its anti-cyclical nature and wave of technological advancements make it a strong long-term bet. Recycling, water management, and environmental remediation aren’t just trends; they’re essential services that will only gain more importance as sustainability takes center stage. Yet, with no easy ETF exposure, investors are forced to dig into individual companies, making this a sector that requires a hands-on approach.
That said, it’s not all smooth sailing. The industry’s capital intensity means high upfront costs and slow payoffs, and ever-changing regulations can be both a boost and a barrier. This is why it often makes more sense to focus on local players who operate within well-defined regulatory environments instead of taking a broad, international gamble.
We’re convinced this sector has serious potential, but we’re holding off on calling it the ultimate winner just yet. Why? Because tomorrow, we’ve got another heavyweight lined up—a sector that might just shake up your expectations.
📌 Stay tuned for Tomorrow’s top-down analysis! We’ll be wrapping up our recent deep dives and discuss our the final sector: Healthcare Support Services . Which industry stands out in today’s economic landscape? Find out soon!
🔔 Want more insights? Subscribe for updates and get exclusive analysis on Top-Down Analysis, Qualitative research and deep dives on companies!
💬 What’s your take on this sector? Smart economic strategy or outdated policy tool? Drop a comment below—let’s debate! 🚀