What Makes First Advantage (FA) a Quality Compounder?

Optimist Fund, an investment management company, released its first quarter 2025 investor letter. A copy of the letter can be downloaded here. The first quarter was characterized by significant volatility, influenced by geopolitical tensions and uncertainties in global trade policy. While these macroeconomic factors caused short-term market fluctuations, they do not alter the firm’s long-term investment strategy or expectations for returns. The fund returned -4.9% in Q1 compared to -7.5% for its benchmark. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.

In its first-quarter 2025 investor letter, Optimist Fund highlighted stocks such as First Advantage Corporation (NASDAQ:FA). First Advantage Corporation (NASDAQ:FA) is a global provider of employment background screening, identity, and verification solutions. The one-month return of First Advantage Corporation (NASDAQ:FA) was 21.21%, and its shares gained 11.51% of their value over the last 52 weeks. On May 08, 2024, First Advantage Corporation (NASDAQ:FA) stock closed at $17.83 per share with a market capitalization of $3.096 billion.

Optimist Fund stated the following regarding First Advantage Corporation (NASDAQ:FA) in its Q1 2025 investor letter:

"Featured Holding: First Advantage Corporation (NASDAQ:FA): A quality compounder undergoing transformational M&A: First Advantage is the leading provider of employment background checks. In 2024, it acquired Sterling Check, the second-largest player, creating a market leader with ~25% share—twice the size of the next competitor. We believe this is a good business in a steady-growth industry, with three compelling idiosyncratic drivers which make it an unusually attractive investment:

1. Cyclical Recovery Ahead The industry has been in a downturn tied to reduced hiring volumes for 2 years. As hiring trends normalize and eventually return to growth, First Advantage will begin to experience multi-year tailwinds. We believe we’re near a cyclical trough meaning we have minimal downside and disproportionate upside…” (Click here to read the full text)

First Advantage Corporation (NASDAQ:FA) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 11 hedge fund portfolios held First Advantage Corporation (NASDAQ:FA) at the end of the fourth quarter, compared to 12 in the third quarter. First Advantage Corporation’s (NASDAQ:FA) pro forma revenues for the fourth quarter of 2024 were $375 million, up 0.9% year-over-year. While we acknowledge the potential of First Advantage Corporation (NASDAQ:FA) as an investment, our conviction lies in the belief that 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 as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

In another article, we covered First Advantage Corporation (NASDAQ:FA) and shared Diamond Hill Small Cap Fund's views on the company. In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.