Stock Analysis

Here's Why We Think FirstService (TSE:FSV) Is Well Worth Watching

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TSX:FSV
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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like FirstService (TSE:FSV), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide FirstService with the means to add long-term value to shareholders.

View our latest analysis for FirstService

How Fast Is FirstService Growing Its Earnings Per Share?

FirstService has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. FirstService has grown its trailing twelve month EPS from US$2.60 to US$2.83, in the last year. That's a fair increase of 9.1%.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note FirstService achieved similar EBIT margins to last year, revenue grew by a solid 13% to US$3.5b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
TSX:FSV Earnings and Revenue History September 26th 2022

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for FirstService?

Are FirstService Insiders Aligned With All Shareholders?

Since FirstService has a market capitalisation of CA$6.9b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. We note that their impressive stake in the company is worth US$576m. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

Does FirstService Deserve A Spot On Your Watchlist?

As previously touched on, FirstService is a growing business, which is encouraging. For those who are looking for a little more than this, the high level of insider ownership enhances our enthusiasm for this growth. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. However, before you get too excited we've discovered 2 warning signs for FirstService (1 shouldn't be ignored!) that you should be aware of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Valuation is complex, but we're helping make it simple.

Find out whether FirstService is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About TSX:FSV

FirstService

FirstService Corporation, together with its subsidiaries, provides residential property management and other essential property services to residential and commercial customers in the United States and Canada.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation1
Future Growth3
Past Performance2
Financial Health4
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Adequate balance sheet with moderate growth potential.