We love FirstService’s exceptional operational execution through its dual-segment business model, combining stable property management services with high-growth branded operations. The company’s recent quarterly performance showcases its ability to drive both organic growth and successfully integrate strategic acquisitions, resulting in a 25% revenue gain.
The company’s aggressive expansion into commercial roofing, coupled with its dominant position in residential property management, creates a compelling growth story with significant market share capture opportunities.
While the stock trades at a high 32.8 times the company’s forward earnings forecast, we feel this multiple is justified as falling interest rates should stimulate construction and renovation activity while successful acquisitions continue to add unique contributions.
FIRSTSERVICE CORP. (Toronto symbol FSV; www.firstservice.com) has two main businesses.
FirstService Residential provides property management services, such as collecting monthly condominium maintenance fees, preparing financial statements, and providing on-site security and property cleaning/maintenance services; and
The second business, FirstService Brands, offers a wide variety of property management services through several franchised businesses, including Paul Davis Restoration, CertaPro Painters, California Closets, Post Home Inspectors, Floor Coverings International and College Pro Painters.
The U.S. supplies 88% of the company’s overall revenue. The remaining 12% comes from Canada.
FirstService operates in a highly fragmented industry, so it tends to fuel its growth with acquisitions. It cuts the risk of this strategy by focusing on smaller businesses that expand its market share and geographic reach. Moreover, many of the former owners continue to run their businesses. That lets FirstService utilize their local knowledge and expertise.
Growth Stocks: FirstService’s strategic acquisitions fuel robust revenue and earnings expansions
In the first nine months of 2024, FirstService spent $158.7 million on acquisitions of smaller firms (all amounts except share price in U.S. dollars).
Those new businesses helped lift the company’s revenue in the quarter ended September 30, 2024, by 25.0%, to $1.40 billion from $1.12 billion a year earlier. That topped the consensus forecast of $1.31 billion.
Earnings before unusual items also jumped 30.4%, to $1.63 a share from $1.25. That too beat the consensus estimate of $1.43 a share.
The stock is up 20.0% in the past year, and hit a new all-time high of $278.19 recently. It now trades at 32.8 times the $5.62 U.S. a share that the company will probably earn in 2025. That’s still an acceptable multiple as falling interest rates should spur construction and renovation activity. The $1.00 dividend yields 0.5%.
Recommendation in The Successful Investor: FirstService Corp. is a buy.
