Global Workforce Mobility And Automation Will Transform Background Screening

Key Takeaways

• Global hiring trends and rising regulatory scrutiny position First Advantage for above-market growth, with strong recurring revenue from compliance-focused, tech-integrated screening solutions.
  
• Industry consolidation and the shift to gig work favor large-scale providers, enabling First Advantage to capture more enterprise deals, drive upselling, and achieve greater margin expansion.
  
• Stricter privacy regulations, commoditization risks, U.S. revenue dependence, rising competition, and integration costs threaten long-term growth, pricing power, and profit margins.

Catalysts

Provides employment background screening, identity, and verification solutions worldwide.

• The increasing globalization and remote nature of workforces is driving a sustained rise in cross-border hiring, which requires more complex and thorough background screening solutions. As more organizations hire internationally, First Advantage’s global footprint—with operations in 200 countries and a rapidly growing database of over 900 million records—positions it to capture above-market revenue growth in both existing and newly penetrated markets.
  
• Surging regulatory scrutiny and heightened compliance demands across industries are compelling employers to seek out comprehensive, trusted screening partners. First Advantage is widely integrated with HR and Applicant Tracking Systems, and its acquisition of Sterling has further expanded its suite of compliance-focused products—setting the stage for stable, highly recurring revenue from customers facing ongoing regulatory complexity.
  
• Accelerating automation and digital transformation in HR departments are incentivizing companies to adopt tech-forward, fully integrated background screening platforms. First Advantage’s significant investments in proprietary technologies, AI-driven automation and workflow streamlining—as well as best-of-breed platform integration from the Sterling acquisition—are expected to increase customer retention and unlock operational efficiencies, supporting both higher contract values and improved net margins.
  
• The consolidation trend sweeping through the background screening industry is favoring large, scaled providers able to offer a broader range of products, faster turnaround, and superior security. First Advantage, now operating at greater scale post-Sterling, is seeing enhanced cross-sell and upsell rates, enterprise contract wins, and a stronger competitive moat—providing tangible opportunities for outsized revenue growth and expanded earnings in coming years.
  
• The continued expansion of the contingent and gig workforce models, especially in resilient sectors such as healthcare, transportation, and retail, is generating recurring demand for frequent re-verifications and new customer onboarding. First Advantage’s industry expertise, diversified vertical mix, and robust sales engine—with a record number of large enterprise bookings—are catalyzing base revenue recovery and pipeline conversion, which is likely to drive sustained top-line acceleration and margin expansion as macroeconomic conditions normalize.

First Advantage Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on First Advantage compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming First Advantage's revenue will grow by 26.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -12.8% today to 5.5% in 3 years time.
• The bullish analysts expect earnings to reach $95.0 million (and earnings per share of $0.54) by about May 2028, up from $-110.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 56.1x on those 2028 earnings, up from -23.3x today. This future PE is greater than the current PE for the US Professional Services industry at 21.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.9%, as per the Simply Wall St company report.

First Advantage Future Earnings Per Share Growth

Risks

• The growing landscape of global privacy regulations, such as GDPR and the U.S. AI Act, is making it harder and more costly for First Advantage to access, process, and share personal data, which threatens the comprehensiveness and efficiency of its core verification and screening services, leading to increased compliance costs and possible constraints on revenue growth and net margins over time.
  
• Continuing advancements in automation and AI across the HR sector may commoditize background screening services, reducing pricing power and eroding First Advantage’s competitive advantage, which could compress long-term profitability and diminish future earnings potential.
  
• The company remains highly concentrated in the U.S. market, with 87 percent of pro forma revenues coming from domestic clients and only 13 percent internationally, which poses a risk that slow international expansion and limited geographical diversification could cap top-line growth and limit resilience if U.S. demand weakens.
  
• Increasing industry competition from low-cost technology-based or in-house background screening solutions among HR platforms and corporate clients is putting structural pressure on pricing and profitability, risking First Advantage’s market share and margins and potentially weakening revenue growth rates.
  
• Ongoing integration costs from the Sterling acquisition, along with significant investments in upgrading technology infrastructure to meet new regulatory demands, may continue to place downward pressure on net margins and slow deleveraging, particularly as margin improvements and synergy benefits take time to fully materialize in reported earnings.

Valuation

• The assumed bullish price target for First Advantage is $20.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of First Advantage's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $20.0, and the most bearish reporting a price target of just $13.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.7 billion, earnings will come to $95.0 million, and it would be trading on a PE ratio of 56.1x, assuming you use a discount rate of 7.9%.
• Given the current share price of $14.82, the bullish analyst price target of $20.0 is 25.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.