We came across a bullish thesis on Comfort Systems USA, Inc. (FIX) on Value Investing Subreddit Page by Aevykin. In this article, we will summarize the bulls’ thesis on FIX. Comfort Systems USA, Inc. (FIX)’s share was trading at $324.11 as of March 28th. FIX’s trailing and forward P/E were 22.20 and 18.59 respectively according to Yahoo Finance.
Comfort Systems USA (FIX) has faced a sharp 30% decline in its stock price over the past four months, primarily due to macroeconomic concerns surrounding data center expenditure and AI-related projects. Despite this downturn, the company’s business fundamentals remain intact, showing no signs of an actual slowdown. FIX derives a significant portion of its revenue from technology infrastructure projects, including data centers and semiconductor plants, and fears of weakening demand appear to be overblown. The current valuation, with a trailing P/E of 22 and a forward P/E of 18, presents a compelling opportunity for investors looking beyond short-term market noise.
Comfort Systems USA operates as a roll-up business specializing in HVAC and MEP (mechanical, electrical, plumbing) solutions. The company follows a disciplined capital allocation strategy, dedicating approximately 75% of its capital to acquisitions, 15% to share buybacks, and 10% to dividends. Growth in the MEP industry remains strong, with substantial tailwinds propelling FIX’s performance. Over the past few years, revenue has grown at an average rate of 30%, while EPS has nearly doubled from 2022 to 2024. FIX also boasts an impressive return on invested capital (ROIC) of 30% in 2024, underscoring its efficient use of capital. The company’s backlog remains robust, currently standing at approximately $6 billion, and CEO Brian Lane has stated that demand is so high that the company is being selective in choosing the most profitable projects. Lane’s leadership has been instrumental in FIX’s long-term success, and under his guidance, the stock has tripled in value over the past few years.
Even under conservative assumptions, FIX remains undervalued. Assuming revenue growth slows to 15% annually over the next four years, with free cash flow margins at 10.5%, the stock is currently trading at a 20% discount to fair value. However, if FIX maintains its historical growth rate of 25-30%, the stock could be trading at a 40-50% discount, presenting significant upside potential. Given the company’s ability to compound earnings at a high rate and its essential role in critical infrastructure, FIX represents an attractive long-term investment.
Comfort Systems USA, Inc. (FIX) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 50 hedge fund portfolios held FIX at the end of the fourth quarter which was 35 in the previous quarter. While we acknowledge the risk and potential of FIX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FIX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.