FIX - Comfort Systems USA: The Market Has Overpriced Its Growth
2024-06-14 11:40:52 ET
Summary
- FIX achieved double-digit growth through acquisitions, focusing on small projects with an average value of USD 1.1 million.
- Financially sound with positive cash flow, FIX faces challenges in maintaining growth through acquisitions in a low-growth sector.
- There is no margin of safety even assuming that it could double its revenue in 5 years via acquisitions.
Investment Thesis
Over the past decade, Comfort Systems USA ( FIX ) delivered double-digit growth in a low-growth sector via acquisitions. This was more of a volume-led growth based on securing a large number of small projects annually with an average value of USD 1.1 million.
FIX will have to continue with this acquisition strategy to continue with the double-digit growth. However, I am concerned about its ability to continue growing at this pace. A valuation assuming that it could double its 2023 revenue in 5 years does not provide any margin of safety.
Business background
FIX provides mechanical and electrical engineering services in the US. Its mechanical engineering services are focused on HVAC (heating, ventilation, air-conditioning), plumbing, piping and controls. In 2023, mechanical engineering services accounted for about 76% of the total revenue with the balance from electrical engineering services....
Comfort Systems USA: The Market Has Overpriced Its Growth