Often, investors have a hard time short-listing the right stocks, especially when there is relatively little difference in their return potential and fundamental strengths. They may lean towards multiple stocks, but dividing the capital for all these stocks may lead to over-diversification.
If you ever face this conundrum, one solution is to limit your options. Choose one stock you would pick above all. You will have an easier time making the right choice. By that logic, if I had to choose a single stock right now, that would be FirstService (TSX:FSV). The business model of the company, coupled with its performance, make it a very strong pick, especially from a retirement-planning perspective.
The company
FirstService is the largest manager of residential communities in North America. It has a portfolio of about 8,500 communities, representing about 1.7 million residential units, and it’s always adding to this portfolio. This is a relatively long-term business, because communities/properties only change property managers if there are significant service issues or the pricing model is no longer viable.
Property management represents just one-half of the company’s business model (the smaller half). The other half is made up of essential property services like property restoration, cleanup, repairs, fire protection, and home inspection. Its essential service portfolio also includes the largest painting contractor in North America.
All these fundamental strengths make FirstService a stable and reliable investment. The company is rooted in thousands of communities around the globe and covers multiple facets of a complex market. It’s also experiencing steady financial growth.
The stock
The stock has experienced steady and powerful growth since its inception, with one massive correction breaking its perfect stride. The correction pushed the stock down over 40%, and it has yet to fully recover from it, but even then, the overall returns have been exceptional — over 500% since May 2015 when it joined the TSX.
The stock is also quite resilient. It lost about a third of its market value in the 2020 crash but managed to bounce back to its pre-COVID peak in less than six months. The correction it’s currently recovering from was more brutal, but the recovery has been quite steady.
Even though the yield is minimal, the financially sustainable dividends and generous dividend increases that earned it the title of an aristocrat are an additional endorsement for this pick.
Foolish takeaway
One major reservation when it comes to investing in FirstService is its overvaluation. The company currently has a price-to-earnings ratio of about 50, and other valuation metrics aren’t faring any better. However, it’s justifiable if you consider the steady financial growth and rapid stock growth.
