We came across a bullish thesis on Franklin Covey Co. (FC) on The Lion’s Roar – Outside the Box Investments’ Substack by Dominick D’Angelo. In this article, we will summarize the bulls’ thesis on FC. FC Technologies, Inc. share was trading at $41.49 as of Sept 24th. FC’s trailing and forward P/E were 31.20 and 20.66 according to Yahoo Finance.
Franklin Covey (FC) is a global consulting and training company that helps organizations improve their performance. They offer a range of services ranging from training programs to consulting. It serves a diverse clientele, some of its clients are Proctor & Gamble, United Health, Pepsi, and Marriott. Franklin Covey’s revenue segments include the Enterprise Division, Education, and Corporate & Eliminations. FC had a decline in revenue in the second half of 2023 and the first half of 2024 due to concerns regarding a possible recession that made many companies cut back their spending. However, in Q3 of 2024, revenue grew by 2.7% as business confidence among its clients rose suggesting things might be turning around.
The company’s financial results have been inconsistent, with significant revenue declines in Q4 2023 and Q2 2024. Though its gross margins have remained stable, the EBITDA margin saw some fluctuations due to economic challenges. Franklin Covey’s switch to the All Access Pass (AAP) subscription model has helped improve revenue predictability and keep clients on board, boosting gross margins from 66.1% in 2017 to 76.1% in 2023. Though the competitive landscape is tough Franklin Covey has strong ties with big clients like Proctor & Gamble and Marriott.
We estimate that revenue growth will drive the stock and business due to their proven SASS-like business model with high-margin service offerings. We project that heading into 2025 the company will achieve revenue and adj. EBITDA of $321m and $72.4m. Franklin Covey is expanding its sales force and launching initiatives like Impact Pods as there’s a lot of room for growth as they aim to sell more to existing clients.
Taking into consideration the management’s focus on enhancing shareholder value through aggressive share buybacks adds and the future prospects of the business due to the anticipated release of the updated Edition 5.0 of the “7 Habits” is expected to attract renewed interest and sales, leveraging the brand’s established reputation. Additionally, the implementation of the Impact Pods model is enhancing client engagement and satisfaction, which can lead to increased revenue opportunities as clients see the value in expanding their use of Franklin Covey’s resources, thus making target price of $62.56 in 3 years a good buy.
Franklin Covey Co. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 15 hedge fund portfolios held FC at the end of the second quarter which was 19 in the previous quarter. While we acknowledge the risk and potential of FC as an investment, our conviction lies in the belief that some 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 more promising than FC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.