Written by Brian Paradza, CFA at The Motley Fool Canada
Investors in North America’s largest residential properties manager and commercial property services provider FirstService Corp. (TSX:FSV) stock saw a strong rebound in 2023. Following recent bearish market sentiment, shares have given up a prior 23% year-to-date gain but still trade up 15.6% so far this year. Interestingly, the company released an impressive set of third-quarter earnings results on Thursday morning. Could FSV stock be worth a buy today?
FirstService reports impressive growth in Q3 results
Subsequent to its impressive 17% five-year compound annual growth rate in revenue between 2017 and 2022, FirstService Corp continues to grow its revenue and operating earnings at double-digit rates in 2023.
FirstService reported 16% year-over-year growth in third-quarter sales to US$1.1 billion, including 10% organic revenue growth. Third-quarter adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) edged up 17% to US$111.9 million as margins expanded.
I like the company’s revenue growth for the first nine months of 2023, which hovers at 19% year over year to US$ 3.3 billion while adjusted EBITDA is up 25% YoY to US$312.4 million. Nine-months adjusted earnings per share (EPS) of US$3.56 showed an 18% year-over-year surge.
Nicely surpassing targets
FirstService sustained growth spree in 2023 has surpassed management’s long-term revenue growth target of 10% per annum by a wide margin so far this year.
The company targeted organic growth and acquisitions to equally contribute to annual growth targets. However, recent organic growth of 9% at FirstService Residential services segment and 11% at FirstService Brands – the property restoration segment – widely surpassed management’s implied 5% annual target.
Organic growth is a more desirable source of sustainable revenue and earnings growth because it’s cheaper. It comes at no additional dilutive or leverage expense to shareholders.
Most noteworthy, FirstService’s latest growth spree was aided by expanded service offerings to existing customers, at low additional costs, leading to welcome margin expansions.
Is the stock a buy today?
FirstService stock could be a must-have growth stock to buy as it gains more market share in North America’s property services and buildings restoration industry.
Good earnings margins and sustained double-digit growth rates make FSV stock a growth stock with a proven long-term track record of positive shareholder returns. FirstService stock generated 494.8% in total shareholder returns over the past decade, turning a $10,000 investment into $59,500 over 10 years. Management remains hungry, and its focus on consolidating a fragmented property services market could pay handsome dividends to shareholders.
The company enjoys strong revenue retention rates that add visibility into its future earnings and cash flows. What’s more, its operations produce recurring positive free cash flow that management uses to close add-on accretive acquisitions – a significant source of growth.
Most noteworthy, FirstService stock trades at reasonable valuations in October.
FSV stock trading at cheaper valuation multiples
FirstService stock trades 25% below its all-time highs of 2021 following a strong rebound from a 40% drawdown seen in 2022.
Shares are either cheap or reasonably priced today as they change hands at a forward normalized price-to-earnings (P/E) multiple of 27, which is well within a pre-pandemic range printed before market volatility in 2020 and 2021 expanded the multiple beyond 48 at some point in July 2021.
FirstService stock could be a good long-term buy during a bear market this quarter.
The post Up 15% in 2023: Is FirstService Stock Worth a Buy Today? appeared first on The Motley Fool Canada.
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