Funeral services operator Park Lawn - number two in North America behind behemoth Service Corp - has proven that it has growth in spades: In US dollars, over the decade 2012-2022, its sales grew from $14 to $312 million.
However, the number of shares increased tenfold over the period, so that earnings per share grew at a much slower pace, from $0.48 to $0.55. Park Lawn is a serial acquirer, financing its external growth strategy through successive capital increases.
The Group now seems able to generate free cash flow of around $50 million a year, but this has been achieved by spending over $700 million on acquisitions: the profitability of the latter is therefore positive but relatively disappointing.
Following the recent fall in the share price, the enterprise value - market capitalization and net debt - is now hovering around $760 million, i.e. x15 the free cash flow generated last year. At first sight, such a low multiple would seem very low for a company undergoing exponential growth, but as we can see, not all growth is created equal.
Of course, some will be quick to point out that Park Lawn is building on a substantial competitive advantage, since once established in a municipality, cemetery and funeral home operators become virtually indistinguishable from the competition.