First Advantage Corporation (FA): what the price assumes

In the published model solve dated 2026-Q2, anchored at $21.38, First Advantage Corporation (FA) is priced for +11.7% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-26.

Generated: 2026-09-07 · Exported: 2026-09-09 · Source: https://boothcheck.com/report/FA

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 5: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 7% cost of capital with 4% terminal growth over a 5-year stage (computed at the 7% minimum rate; the CAPM rate 6.8% sits below it).

How unusual the bet is: within-range (limited comparison data)

Valuation X-Ray

Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Growth Families that call it expensive: Asset, Earnings, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.2%); the inversion above states its own rate.

Per-Model Detail (n=12)

Economic-Unit Decomposition (Sum Of The Parts)

One or more material disclosed units has unresolved economics. Unknown/general is not evidence of homogeneity: segment SOTP is primary but incomplete, consolidated cash flow may remain only a secondary cross-check when every unit shares an enterprise basis, and one sector multiple or target margin is withheld.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

• First Advantage runs employment background checks, and almost all of its recent growth was bought rather than built: fiscal 2025 revenue rose 83.0%, of which "revenues of $659.5 million, or 76.7%, attributable to Sterling as a result of the Sterling Acquisition completed on October 31, 2024" and only 3.5 percentage points came from new customers.
• The borrowing that paid for it now shapes the whole income statement: total long-term debt sits near 2.11 billion dollars, and the interest on it absorbs so much of the operating profit that first-quarter 2026 net income was $2.2 million on $385.2 million of revenue.
• Hiring is the demand signal to watch, and the annual report already notes "the continuation of more modest hiring activity from our customers"; second-quarter results are due August 6, 2026.

Bull Case

The methods used to triangulate this company disagree with each other more sharply than they do for almost any comparable business, and the disagreement is informative rather than confusing. The forward-looking approaches, the ones that discount cash generation, land above the current price. The approaches that capitalize trailing reported earnings or work up from book value land nowhere near it. That pattern is not a puzzle. It is the exact signature of a company whose reported profit is being consumed by the interest and the intangible amortization created when it bought a competitor, while the cash underneath keeps arriving.

Look at what the reported line is actually net of. First-quarter 2026 net income was $2.2 million on revenue of $385.2 million, against a net loss of $41.2 million in the same quarter a year earlier. Nothing about the underlying business changed that much in twelve months. What changed was the financing. The filing attributes the improvement to "lower interest on the Company's term loan, reflecting voluntary principal repayments and reduced interest rates following the Company's 2025 amendment to its 2024 First Lien Credit Agreement".

Management has been working that lever deliberately. On July 30, 2025 the company amended the credit agreement "to reduce the interest rate on its term loan facility to a range of 2.50 % to 2.75 %, based on the first lien ratio, plus SOFR", and it has been retiring principal voluntarily, including "voluntary principal repayments of $65.0 million on the Company's outstanding term loan facility". Both actions do the same thing from a holder's point of view. When the interest bill is roughly the size of the operating profit, every dollar of it removed drops almost intact to the equity.

The business those payments rest on is stickier than a screening service sounds. Customer agreements are "typically three years in length" and they sit inside the customer's hiring workflow, integrated with the applicant tracking system, the drug testing vendor and the compliance calendar. Screening is a small line in a hiring budget and an enormous nuisance to switch. That combination is why the filing can describe capitalising on "network effects as we build goodwill through customer reviews and testimonials, word-of-mouth referrals, and references from other industry participants" without it reading as marketing.

The honest limitation is on the growth side, and the bull should concede it rather than argue it. Organic expansion has been thin: new customers added 3.5 percentage points to fiscal 2025 revenue while the acquisition added the rest. So this is not a compounder story. It is a deleveraging story attached to a durable, low-drama revenue base, where the equity is a leveraged claim on cash flows that a labour-market recovery would amplify and a debt paydown improves regardless.

Bear Case

Background screening is not a category that defends itself. The annual report describes a field crowded from several directions at once: competitors "focused on specific pre‑ and post‑onboarding product categories, including drug and health screening and executive screening services", plus "competition from providers offering adjacent solutions such as fleet and vehicle compliance, hiring tax credits and incentives, employment eligibility verification". The company itself lists turnaround time and pricing among the terms on which it competes, which is another way of saying speed and price. EFX operates the adjacent workforce-data business at a revenue base of about 6.28 billion dollars and converts 18.3% of it into operating profit, roughly double the share First Advantage manages, and it does so because it owns the payroll-records asset that turns verification into a lookup rather than an investigation. PAYC at 28.3% and PCTY at 21.3% show what genuinely software-shaped businesses in the hiring stack earn. First Advantage sits well below all three.

The demand side is cyclical in a way the contract structure disguises. A three-year agreement guarantees the pricing, not the volume, and volume is a direct function of how many people the customer hires. The annual report says as much when it attributes weaker cash flows partly to "the continuation of more modest hiring activity from our customers". When hiring slows, screening orders slow with it, immediately, and there is no backlog to smooth the transition.

Then there is where the growth came from. Fiscal 2025 revenue rose 83.0%, and the filing is precise about the split: "revenues of $659.5 million, or 76.7%, attributable to Sterling as a result of the Sterling Acquisition completed on October 31, 2024" against "revenues of $30.2 million, or 3.5%, from new customers". Strip the acquisition out and what remains is low single-digit expansion. A roll-up can create real value, but it has to be judged on what it earns after the price it paid, not on the revenue line it assembled.

The price paid is still on the balance sheet. Total long-term debt stands near 2.11 billion dollars, and the interest on it consumes very nearly all of the operating profit the business generates. That is why net income for the first quarter of 2026 was $2.2 million on $385.2 million of revenue: a rounding error, arrived at after everything else went to lenders and to amortization. Meanwhile the cost line is drifting the wrong way, with cost of services at "54.9 %" of revenue in that quarter against 54.3% a year earlier, which the filing attributes partly to the acquired business carrying a higher relative cost of services.

What the price requires makes the fragility concrete. Read backwards, today's quote implies company-wide operating profit compounding at something like 20.7% a year across a five-year stage. That is one solve under fixed assumptions rather than a measurement, and about 42% of comparable fast growers have historically managed such a pace over that span, so it is demanding rather than fanciful. But it is being asked of a business whose organic growth ran at low single digits last year and whose operating profit is almost entirely spoken for by the lenders. If hiring stays modest, the required growth has to come from the debt paydown alone, and the debt paydown is arithmetic with a ceiling.

The concession is real: the company is deleveraging, the refinancing genuinely lowered the cost of the debt, and the first quarter showed a positive bottom line for the first time in a while. The bear's point is that all of that improvement came from the right-hand side of the balance sheet, and none of it from selling more screens.

Valuation

This is a leveraged roll-up in a services business, and the valuation follows from that structure rather than from anything exotic. The company bought a competitor at the end of 2024, financed it with a term loan, and now runs an income statement where revenue is large, operating profit is respectable and reported net income is almost nothing, because the gap between the second and third is interest and the amortization of what the acquisition created.

That structure is what makes the methods split. Forward-looking approaches that discount cash generation land above the price; approaches that capitalize trailing reported earnings, or build up from book value, land far below it. Neither camp is malfunctioning. They are measuring different things about the same company, and a reader who understands the capital structure can see why the gap exists rather than treating it as a contradiction to be averaged away.

The concrete question is the operating margin and who gets it. Trailing operating profit runs near 158.4 million dollars on revenue near 1.605 billion dollars, which is roughly a tenth of sales. EFX, the closest listed analogue in workforce data, converts 18.3% of a much larger revenue base. So First Advantage earns about half the margin of the comparable at a quarter of the scale, and then hands most of what it does earn to its lenders. First-quarter 2026 net income of $2.2 million on $385.2 million of revenue is that sentence expressed as an accounting fact.

Read backwards, today's quote implies company-wide operating profit compounding at roughly 20.7% a year over a five-year stage. Approach that figure with care in both directions: it is a single solve under fixed assumptions, and the calculation is unusually sensitive to the assumed cost of capital, where a single point of difference moves the implied growth by something like eleven points. The useful reading is directional. The price is not paying for a stable low-growth services business; it is paying for one that expands materially faster than the 3.5 percentage points of new-customer revenue the last full year produced.

Solvency is where the whole argument lands. Total long-term debt near 2.11 billion dollars against liquid assets near 225.9 million dollars leaves the equity as a residual claim behind a very large fixed obligation, and the July 2025 repricing to a spread of "2.50 % to 2.75 %" over SOFR reduced the cost of that obligation without reducing its size much. The share count has grown about 3.5% a year since spring 2022, so holders have been diluted modestly while the leverage worked. Whether this equity is cheap or expensive is, in the end, a question about how quickly that balance can be brought down and what hiring does in the meantime.

Catalysts

Second-quarter results are scheduled for August 6, 2026, a date the company confirmed on July 16, 2026. Two lines carry the information. The first is revenue against the full-year 2026 guidance range of $1.625 billion to $1.7 billion that management reaffirmed with the previous quarter. The second is interest expense, because the deleveraging is currently doing more for the bottom line than the operating business is.

The first quarter, reported May 7, 2026, is the comparison to beat. Revenue reached $385.2 million, up 8.6% on the prior year, and net income came in at $2.2 million against a loss in the same quarter of 2025. Management described it as a record quarter and reaffirmed the full-year outlook rather than raising it, which is a reasonable posture for a business whose volumes depend on customer hiring plans it does not control.

One technical development is worth noting because it affects who owns the shares rather than what they are worth. On June 11, 2026 the company was named to join the S&P SmallCap 600, replacing Kennedy-Wilson Holdings. Index inclusion creates mechanical demand from funds tracking the benchmark. It changes the shareholder register and nothing about the screening business, and it should be read that way.

Peer Cohorts (Per Segment, With Filing Citations)

First Advantage Americas / First Advantage International / Sterling (reported)

• EFX (EQUIFAX INC)
• FY2025 10-K: …us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember us-gaap:DefinedBenefitPlanRealEstateMember 2025-12-31 0000033185 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel12And3Member us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember us-gaap:DefinedBenefitPlanCashMember 2025-12-31…
• FY2025 10-K: …us-gaap:FairValueInputsLevel3Member 2024-12-31 0000033185 us-gaap:FixedIncomeSecuritiesMember 2024-12-31 0000033185 us-gaap:FixedIncomeSecuritiesMember us-gaap:FairValueInputsLevel1Member 2024-12-31 0000033185 us-gaap:FixedIncomeSecuritiesMember us-gaap:FairValueInputsLevel2Member 2024-12-31 0000033185…
• PAYC (Paycom Software, Inc.)
• FY2025 10-K: …of our goodwill and concluded that, as of June 30, 2025 , it was more likely than not that the fair value exceeded the carrying value and therefore goodwill was no t impaired. As of D ecember 31, 2025 and 2024, there were no indicators of impairment. In June 2021, in connection with our marketing initiatives, we…
• FY2025 10-K: …2025-01-01 2025-12-31 0001590955 2025-12-31 0001590955 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-01-01 2024-12-31 0001590955 us-gaap:USTreasurySecuritiesMember us-gaap:FairValueMeasurementsRecurringMember 2024-12-31 0001590955 payc:FurnitureFixturesAndEquipmentMember 2025-12-31 0001590955…
• PCTY (PAYLOCITY HOLDING CORPORATION)
• FY2025 10-K: …0001591698 06-30 2025 FY FALSE FALSE FALSE FALSE FALSE P2Y P3Y P5Y P5Y http://fasb.org/us-gaap/2025#AccruedLiabilitiesCurrent http://fasb.org/us-gaap/2025#AccruedLiabilitiesCurrent P3Y 6/30/2030 6/30/2045 6/30/2026 6/30/2045 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure pcty:vote pcty:segment…
• FY2025 10-K: …the Illinois Biometric Information Privacy Act that overlap with claims in the first action. On June 13, 2025, the Company settled this matter without a material impact on the Company's financial statements. F-29 Table of Contents Additionally, from time to time, the Company is subject to litigation arising in the…
• TNET (TRINET GROUP, INC.)
• FY2025 10-K: …clients. Less than 1 % of our revenue is generated outside of the U.S. Basis of Presentation Our consolidated financial statements are prepared in conformity with generally accepted accounting principles in the United States of America (GAAP). All intercompany accounts and transactions have been eliminated in…
• FY2025 10-K: …our solutions; the failure of third-party service providers performing their functions; the failure to comply with anti-corruption laws and regulations, economic and trade sanctions and similar laws; the outcome of existing and future legal and tax proceedings; fluctuation in our results of operations, stock price…
• EXLS (EXLSERVICE HOLDINGS, INC.)
• FY2025 10-K: …exls:HistoricalVolatilitiesMonteCarloSimulationModelPerformanceRestrictedStockUnitsMember 2025-01-01 2025-12-31 0001297989 exls:AmendmentAndRestatementOfThe2006OmnibusAwardPlan2015PlanMember exls:RiskFreeInterestRateMonteCarloSimulationModelPerformanceRestrictedStockUnitsMember 2025-01-01 2025-12-31 0001297989…
• FY2025 10-K: …exls:CreditAgreementMember srt:MinimumMember 2024-01-01 2024-12-31 0001297989 us-gaap:SecuredDebtMember us-gaap:SecuredOvernightFinancingRateSofrMember exls:CreditAgreementMember srt:MaximumMember 2024-01-01 2024-12-31 0001297989 us-gaap:RevolvingCreditFacilityMember exls:CreditAgreementMember srt:MinimumMember…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.