FEDERAL SIGNAL CORP (NYSE:FSS) – A Quality Stock Worth Considering

FEDERAL SIGNAL CORP (NYSE:FSS) was identified as a strong candidate for quality investors through our Caviar Cruise stock screener. The company demonstrates consistent growth, high profitability, and solid financial health, making it a compelling choice for long-term investors. Below, we examine why FSS meets the criteria for quality investing.

Key Strengths of FSS

• Strong Revenue and EBIT Growth: Over the past five years, FSS has delivered revenue growth of 7.4% annually, while EBIT growth has been even stronger at 13.7%. This indicates improving operational efficiency and profitability.
• High Return on Invested Capital (ROIC): With an ROIC of 29.3%, FSS generates significant returns on its capital investments, well above the 15% threshold for quality stocks.
• Healthy Debt Management: The company’s debt-to-free cash flow ratio stands at just 1.4, meaning it could pay off its debt in under two years using current cash flows—a sign of financial stability.
• Profit Quality: FSS converts 76.6% of its net income into free cash flow, demonstrating reliable earnings quality.

Fundamental Analysis Summary

Our fundamental report assigns FSS a rating of 6 out of 10, highlighting its strong profitability and financial health. Key takeaways include:

• Profitability: FSS outperforms most peers in return on assets (11.2%) and return on equity (17.6%). Operating margins have also improved in recent years.
• Financial Health: The company maintains a low debt-to-equity ratio (0.22) and a strong Altman-Z score (7.70), indicating minimal bankruptcy risk.
• Valuation: While FSS trades at a premium (P/E of 27.2), its growth prospects and high profitability may justify the valuation.

For investors seeking quality stocks with steady growth and strong fundamentals, FSS presents a compelling case.

Our Caviar Cruise screener lists more quality investment candidates and is updated regularly.

Disclaimer

This is not investing advice! The article highlights observations at the time of writing, but you should conduct your own analysis before making investment decisions.