What Makes First Advantage (FA) a Quality Compounder?

Soumya Eswaran

Fri, May 9, 2025, 6:39 AM 3 min read

Optimist Fund, an investment management company, released its first quarter 2025 investor letter. A copy of the letter can be downloaded here. The first quarter was characterized by significant volatility, influenced by geopolitical tensions and uncertainties in global trade policy. While these macroeconomic factors caused short-term market fluctuations, they do not alter the firm’s long-term investment strategy or expectations for returns. The fund returned -4.9% in Q1 compared to -7.5% for its benchmark. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.

In its first-quarter 2025 investor letter, Optimist Fund highlighted stocks such as First Advantage Corporation (NASDAQ:FA). First Advantage Corporation (NASDAQ:FA) is a global provider of employment background screening, identity, and verification solutions. The one-month return of First Advantage Corporation (NASDAQ:FA) was 21.21%, and its shares gained 11.51% of their value over the last 52 weeks. On May 08, 2024, First Advantage Corporation (NASDAQ:FA) stock closed at $17.83 per share with a market capitalization of $3.096 billion.

Optimist Fund stated the following regarding First Advantage Corporation (NASDAQ:FA) in its Q1 2025 investor letter:

"Featured Holding: First Advantage Corporation (NASDAQ:FA): A quality compounder undergoing transformational M&A: First Advantage is the leading provider of employment background checks. In 2024, it acquired Sterling Check, the second-largest player, creating a market leader with ~25% share—twice the size of the next competitor. We believe this is a good business in a steady-growth industry, with three compelling idiosyncratic drivers which make it an unusually attractive investment:

A close-up of the fingers of a technician scanning an ID, verifying the Enrollment Verification process.

First Advantage Corporation (NASDAQ:FA) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 11 hedge fund portfolios held First Advantage Corporation (NASDAQ:FA) at the end of the fourth quarter, compared to 12 in the third quarter. First Advantage Corporation’s (NASDAQ:FA) pro forma revenues for the fourth quarter of 2024 were $375 million, up 0.9% year-over-year. While we acknowledge the potential of First Advantage Corporation (NASDAQ:FA) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.