Is First Advantage Stock a Buy After Onex Canada Scooped Up Shares Worth Over $3 Million?

The recent institutional investment by Onex Canada in First Advantage Corporation (NASDAQ: FA) has sparked renewed interest in the stock, particularly among value investors seeking undervalued opportunities in a volatile market. While the exact size of Onex's stake-772,147 shares-was disclosed according to the report, the $3 million valuation of the investment (assuming a rough average price per share) reflects a strategic bet on a company navigating macroeconomic headwinds while maintaining strong operational performance. This analysis evaluates whether First Advantage's stock aligns with value investing principles and institutional sentiment, leveraging financial metrics, guidance revisions, and technical signals to assess its potential as a strategic entry point.

Financial Performance: Resilience Amid Challenges

First Advantage's 2023 financials underscore its resilience. The company reported $763.8 million in revenues and adjusted EBITDA of $237.6 million, with EBITDA margins peaking at 32.3% in Q3 2023. These figures highlight its ability to generate robust cash flows despite a challenging labor market. However, the $2.2 billion acquisition of Sterling Check Corp in 2023 introduced short-term volatility. For 2024, First Advantage reported a net loss of $110.3 million, largely attributable to $130.5 million in acquisition-related expenses. Excluding these costs, the combined entity generated $1.51 billion in revenues and $397 million in adjusted EBITDA, demonstrating the acquisition's long-term strategic value.

The company's 2025 guidance-$1.5 billion to $1.6 billion in revenue and $410 million to $450 million in adjusted EBITDA-further reinforces confidence in its growth trajectory according to the latest earnings report. For value investors, this trajectory suggests a company with durable cash flow generation and a clear path to post-acquisition integration.

Valuation Metrics: Attractive Multiples or Overleveraged?

First Advantage's valuation appears compelling at first glance. As of January 2, 2026, its P/E ratio stands at 18.27, while its forward P/E is 11.88 according to market data, indicating a discount relative to earnings expectations. However, the company's debt-to-equity ratio of 162.84% according to financial data raises concerns about leverage, particularly for risk-averse investors. This high debt load, driven by the Sterling acquisition, could amplify downside risks in a rising interest rate environment.

From a value investing lens, the stock's book value per share of $7.48 according to financial data and strong EBITDA margins suggest intrinsic value, but the elevated leverage requires careful scrutiny. The key question is whether the company's growth prospects justify the risk of its capital structure.

Institutional Sentiment: Confidence in Long-Term Prospects

Institutional ownership of First Advantage remains robust, with 94.91% of shares held by institutions according to market data. This level of confidence, even after the 2024 net loss, signals that large investors view the company's long-term potential as outweighing short-term volatility. Onex Canada's investment, in particular, aligns with its broader strategy of deploying capital in high-conviction opportunities. While the firm's 2023 private equity investments totaled $800 million, its focus on First Advantage underscores the company's strategic appeal.

Technical Analysis: A Divergence Between Fundamentals and Indicators

Technical indicators present a mixed picture. First Advantage's RSI of 47.26 according to technical analysis suggests a neutral to bearish stance, while moving averages and other signals point to a "Strong Sell" rating according to trading platform data. These signals reflect short-term selling pressure, possibly driven by the 2024 acquisition-related losses. However, institutional sentiment and strong fundamentals indicate that the stock may be oversold. For value investors, this divergence could represent a contrarian opportunity, particularly if the company's 2025 guidance is met.

Conclusion: A Calculated Bet on Resilience

First Advantage's stock is not without risks. Its high debt load and technical sell signals warrant caution. However, the company's strong EBITDA margins, institutional confidence, and optimistic guidance create a compelling case for value investors willing to tolerate short-term volatility. Onex Canada's investment, while modest in absolute terms, reflects a belief in the company's ability to navigate its current challenges and deliver long-term value.

For those with a medium-term horizon, First Advantage could represent a strategic entry point-provided investors are prepared to monitor its debt management and integration of Sterling Check. In a market where certainty is elusive, the alignment of institutional sentiment and fundamental strength offers a rare opportunity to balance risk and reward.