3 Reasons FSS Has Explosive Upside Potential

What a fantastic six months it’s been for Federal Signal. Shares of the company have skyrocketed 60.3%, hitting $125.29. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now still a good time to buy FSS? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.

Why Is FSS a Good Business?

Developing sirens that warned of air raid attacks or fallout during the Cold War, Federal Signal (NYSE:FSS) provides safety and emergency equipment for government agencies, municipalities, and industrial companies.

1. Operating Margin Rising, Profits Up

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Looking at the trend in its profitability, Federal Signal’s operating margin rose by 4.4 percentage points over the last five years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 15.7%.

2. Outstanding Long-Term EPS Growth

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Federal Signal’s EPS grew at a spectacular 15.9% compounded annual growth rate over the last five years, higher than its 10.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

3. Increasing Free Cash Flow Margin Juices Financials

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Federal Signal’s margin expanded by 4.1 percentage points over the last five years. This is encouraging because it gives the company more optionality. Federal Signal’s free cash flow margin for the trailing 12 months was 11.5%.

Final Judgment

These are just a few reasons why we're bullish on Federal Signal, and with the recent surge, the stock trades at 30.9× forward P/E (or $125.29 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

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