Since December 2024, Federal Signal has been in a holding pattern, posting a small loss of 4.4% while floating around $93.99.
Does this present a buying opportunity for FSS? Or is its underperformance reflective of its story and business quality? Find out in our full research report, it’s free.
Why Are We Positive On Federal Signal?
Developing sirens that warned of air raid attacks or fallout during the Cold War, Federal Signal (NYSE: FSS) provides safety and emergency equipment for government agencies, municipalities, and industrial companies.
1. Surging Backlog Locks In Future Sales
We can better understand Heavy Transportation Equipment companies by analyzing their backlog. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Federal Signal’s future revenue streams.
Federal Signal’s backlog punched in at $1.10 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 10.8%. This performance was impressive and shows the company has a robust sales pipeline because it is accumulating more orders than it can fulfill. Its growth also suggests that customers are committing to Federal Signal for the long term, enhancing the business’s predictability. 
2. Operating Margin Rising, Profits Up
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Looking at the trend in its profitability, Federal Signal’s operating margin rose by 4.1 percentage points over the last five years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 15.4%.
3. Outstanding Long-Term EPS Growth
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Federal Signal’s EPS grew at a remarkable 12.9% compounded annual growth rate over the last five years, higher than its 9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
These are just a few reasons why Federal Signal ranks highly on our list, but at $93.99 per share (or 24.5× forward P/E), is now the time to initiate a position? See for yourself in our full research report, it’s free.
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