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Why Investors Shouldn't Be Surprised By First Advantage Corporation's (NASDAQ:FA) 25% Share Price Surge

Simply Wall St · 2d ago

First Advantage Corporation (NASDAQ:FA) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 18% over that time.

Since its price has surged higher, given close to half the companies operating in the United States' Professional Services industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider First Advantage as a stock to potentially avoid with its 1.8x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for First Advantage

ps-multiple-vs-industry
NasdaqGS:FA Price to Sales Ratio vs Industry December 19th 2025

What Does First Advantage's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, First Advantage has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think First Advantage's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

First Advantage's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 93% last year. The strong recent performance means it was also able to grow revenue by 80% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 9.7% during the coming year according to the nine analysts following the company. That's shaping up to be materially higher than the 6.5% growth forecast for the broader industry.

In light of this, it's understandable that First Advantage's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

First Advantage shares have taken a big step in a northerly direction, but its P/S is elevated as a result. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of First Advantage's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for First Advantage with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of First Advantage's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.