We came across a bullish thesis on Comfort Systems USA, Inc. (NYSE:FIX) on ValueInvestorsClub by ppsm920. In this article, we will summarize the bulls’ thesis on FIX. The company’s shares were trading at $440.00 when this thesis was published, vs. the closing price of $356.63 on Feb 27.
A worker on a ladder, repairing the electrical power transmission lines.
FIX provides mechanical and electrical installation, renovation, maintenance, repair, and replacement services for the mechanical and electrical services industry in the United States. It operates through two segments: Mechanical and Electrical.
The diverse customer base comprising Industrial Clients, Institutional Clients and Commercial clients contributes 60%, 20% and 20% of its revenue. The company has seen exceptional growth in its revenue with a CAGR of 30% in the last three years. The margins have also increased by 3 percentage points. The high growth can be attributed to the data center explosion due to the AI boom, the preference of chip manufacturers to manufacture locally and sustainable infrastructure development in the US. The legal ecosystem has also been instrumental in driving business higher for the firm. The CHIPS and Science have made the construction of semiconductor factories economically viable and EV production has gained momentum due to the Inflation Reduction Act. These multi-billion-dollar projects are expected to continue in the near future, giving FIX enough opportunity to sustain a high growth rate.
The ability to acquire companies that immediately add value provides another investment thesis. FIX invests 75% of its FCF in acquisitions that offer a 10x EBITDA and an approximate 10% growth in EPS. These acquisitions are allowed to maintain their culture and are given operational flexibility. It is not surprising that FIX generates a 20% ROIC in spite of being a large player in a fragmented industry.
FIX is available at a 24x trailing 12-month earnings multiple. Considering a 60% growth rate in EPS over the past two years, the price looks attractive. A 30% growth in EPS offers a more realistic scenario considering buybacks and better margins from its acquisitions. This would imply a PEG ratio below 1, making it a good buy at the current level.
While we acknowledge the 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 time frame. 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.
