Investor Essentials Daily

This company is leading the fight against wildfires

October 22, 2024

Wildfires have increased significantly since the 1980s due to prolonged droughts, higher temperatures, and climate change, creating severe economic and health impacts.

Perimeter Solutions (PRM) provides critical fire retardant products and firefighting services, with a key advantage as the sole supplier to the U.S. Forest Service.

Its operational expertise and strong relationships with government agencies position the company well in the growing wildfire management market, despite concerns over seasonal revenue fluctuations.

Investor Essentials Daily:
Wednesdays News-based Update
Powered by Valens Research

Wildfires have become an increasingly prominent and dangerous issue, especially over the last few decades.

Since the 1980s, the extent of land burned by wildfires in the United States has seen a significant rise, with many of the largest recorded wildfire seasons occurring after the 2000s.

This increase in wildfire activity is closely tied to several factors, including prolonged droughts, higher temperatures, and changing climate patterns, creating drier conditions that fuel these fires.

Additionally, the build-up of dry vegetation, due in part to decades of fire suppression efforts, has created an environment where wildfires can spread rapidly and burn hotter.

What makes the situation more alarming is that wildfires are not confined to remote areas. They increasingly threaten communities as development expands into forested regions.

The economic toll has been severe, with wildfires causing billions in damages, and the costs of firefighting rising every year.

Moreover, the health risks from smoke and degraded air quality are affecting communities far beyond the immediate areas of the fires, leading to long-term impacts on both the environment and public health.

As these trends continue, managing wildfires will remain a critical challenge.

Perimeter Solutions (PRM) provides critical fire safety solutions through its fire retardant products.

These products are essential for combating wildfires, as seen in their widespread use by government agencies like the U.S. Forest Service.

Perimeter is the sole supplier of fire retardants used by the U.S. Forest Service, giving it a significant competitive advantage in a niche, yet growing market.

Additionally, the company’s operations go beyond just selling products. It offers full-service firefighting support, including staffing and maintaining aerial firefighting bases.

This unique operational capability provides an edge in the fire safety industry, where precision, speed, and reliability are critical.

Perimeter’s ability to manage these operations successfully is a key part of its competitive moat, allowing it to fend off new entrants and retain its leadership position.

Given the increasing risk of wildfires globally, the company is well-positioned to benefit from rising demand for its solutions.

Governments and private entities are seeking more effective wildfire management systems, and Perimeter’s proven track record in this area makes it a go-to provider.

Its long-standing relationships with key agencies, such as the U.S. Forest Service and California’s Department of Forestry and Fire Protection, further cement its role in this vital industry.

These factors enabled Perimeter to achieve 77% Uniform return on assets ”ROA” and 13% asset growth last year.

However, the market has concerns over fluctuations in wildfire activity reflected in the company’s 15x Uniform PE.

Seasonal variances can create uncertainty in revenue projections, as the company’s performance is somewhat tied to the severity and frequency of fire events.

Nonetheless, the long-term trends in wildfire activity point to an increasing demand for the types of solutions Perimeter offers.

Perimeter’s strong business model, operational expertise, and increasing global demand for wildfire management provide a solid foundation for future growth.

 

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

View All

You don’t have access to the Valens Research Premium Application.

To get access to our best content including the highly regarded Conviction Long List and Market Phase Cycle macro newsletter, please contact our Client Relations Team at 630-841-0683 or email client.relations@valens-research.com.

Please fill out the fields below so that our client relations team can contact you

Or contact our Client Relationship Team at 630-841-0683