Meet the Monster Stock that Continues to Crush the Market

It's rare that a monster stock flies entirely under the radar. But today, I'm highlighting a company that's done precisely that. According to MacroTrends, this stock is the 13th-best performer over the past decade, with a compound annual growth rate (CAGR) of almost 38% at recent prices. And it's up about 57% over the past year, trouncing the 22% return for the S&P 500.

For the record, these 10-year returns are almost as good as returns for Tesla, which clearly makes it a monster stock. And yet, it is completely under the radar. According to TipRanks, there are 35 prominent analysts out there giving recommendations about Tesla stock. For the stock I'm highlighting, only three analysts have weighed in. But all three agree that this is a stock worth buying.

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I'm talking about Comfort Systems USA (NYSE: FIX). As the chart below shows, if you had invested $10,000 in this stock 10 years ago, you'd have over $230,000 today.

FIX data by YCharts

Comfort Systems stock has gone up so much in the last 10 years that it rarely takes a breather. But as of this writing, it's down nearly 30% from its all-time high. That's its second-largest pullback of the decade, and it makes this a timely opportunity worth exploring right now.

How Comfort Systems makes money

Comfort Systems provides contractor services across the U.S., specializing in areas such as air conditioning, plumbing, and electrical. Most of its revenue comes from new construction of commercial buildings. But servicing installed systems and updating outdated systems also contribute to the business.

This is historically a fragmented industry, which is why Comfort Systems has focused on acquisitions. From 2007 through 2023, the company spent an average $82.5 million annually to buy other companies, which equates to about 75% of its capital allocation strategy.

This strategy has paid off with growth -- Comfort Systems' revenue has more than quadrupled in the past decade. And many investors believe that the company is just getting started.

Could Comfort Systems USA stock keep rising?

To cut to the chase, I do believe that Comfort Systems' stock can continue to outpace the S&P 500 from here. Allow me to break down three reasons why.

First, the company's outlook has never been better. Its backlog has surged from $2.3 billion at the end of 2021 to an all-time high of nearly $5.7 billion through the third quarter of 2024. While its services are used in a variety of industries, new demand for facilities related to the boom in artificial intelligence (AI) such as data centers and semiconductor manufacturing plants has provided an amazing tailwind. Moreover, many politicians want the U.S. to lead in AI and semiconductor manufacturing, meaning the present tailwinds for Comfort Systems show no sign of abating.

Second, Comfort Systems is in stronger financial position than it's perhaps ever been. As of Q3, it had $416 million in cash, which is by far its largest cash position ever. And it only had $68 million in debt, which is down dramatically from debt of over $300 million just a couple of years ago.

Third, Comfort Systems is in a great position to reward shareholders. In short, its revenue should keep growing thanks to its robust backlog. This will keep profits coming. And with a large cash position and little debt, it will consequently have a lot of money to give back to shareholders.

To be clear, Comfort Systems will likely keep looking for good acquisitions. But it also buys back stock and pays a dividend. In fairness, its buybacks haven't reduced the share count by much over the past decade. But the dividend is on an impressive streak. In October, management announced a nearly 17% increase to its quarterly dividend, which makes 12 consecutive years of paying and increasing the dividend.

FIX Average Diluted Shares Outstanding (Quarterly) data by YCharts

Adding it all up, I foresee a lot of profitable growth for Comfort Systems USA in coming years, which could give the stock price a nice push higher.

As with any investment, there are valid concerns. For example, from a price-to-sales (P/S) valuation perspective, Comfort Systems USA stock is twice as expensive as its 10-year average valuation. Moreover, macroeconomic headwinds could slow down growth in the semiconductor industry, which could lead to lower demand for its services.

That said, it's often a good idea to give a proven monster stock the benefit of the doubt. In conclusion, business looks good for Comfort System USA and it's pushed through headwinds before. For these reasons, it could still be worth buying today.

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.