"Childcare centres are not good businesses. The return on equity...

"Childcare centres are not good businesses. The return on equity is lousy"

I disagree. The quality of earnings from child care is among the best anywhere you can find in a business. In Australia in particular, with the generous child care benefits here.

Barriers to entry are high -- any competing entrepreneur will have little to differentiate its offering from ABC and cannot compete on price against ABC's status as lowest cost supplier. They'll just be another corporate child care chain, except charges higher fees than ABC. I can't see what incentive NFP and community run centres have to set up new centres. For one, who will stump up the risk capital?

Given these characteristics in my opinion if you can buy these earnings at a cheap price I don't see why you cannot earn excellent returns on equity. Of course, if you overpay for an asset, it doesn't matter if its the best business in the world, you'll still earn crap returns.