Marvelous Microcaps
Carriage Services, Inc. (CSV)
INTRO:
At Perritt Capital Management, we take focused positions in companies where we have a high conviction in their success; companies that are out of the mainstream of small cap investing. To highlight our process, we are pleased to present the newest installment in our ongoing series “Marvelous Microcaps – Big Ideas on Small Companies.” This series profiles companies that we believe have a niche in their existing markets or are launching a product that could disrupt their marketplace.
THE COMPANY:
Carriage Services, Inc. (CSV) provides funeral and cemetery services, and merchandise in the United States. It operates through two segments, Funeral Home Operations and Cemetery Operations. The Funeral Home segment provides consultation services; funeral home facilities for visitation and memorial services; transportation services; removal and preparation of remains; cremation services; and related funeral merchandise, as well as engages in the sale of caskets and urns. The Cemetery Operations segment sells interment rights for grave sites, lawn crypts, mausoleum spaces, and niches; related cemetery merchandise, including memorial markets, outer burial containers, and monuments; and interments, inurnments, and installation of cemetery merchandise services. Carriage Services was founded in 1991 and is based in Houston, Texas. They currently administer a network of 160 funeral homes spread across twenty-six states and twenty-eight cemeteries spread across ten states. They are only one of two public companies in the funeral and cemetery services and merchandise industry.
WHY WE OWN: THE PERRITT ADVANTAGE
We were originally attracted to Carriage Services due to their strong presence in the deathcare industry, where they are a diverse industry provider with a robust presence in both funeral homes and cemeteries. Demographic trends favor the industry, with over 22 million Americans over the age of 75 and 10,000 more turning 75 every day during the next decade, there is a strong pipeline of demand for funerary services that Carriage will be able to serve. These demographic trends represent a growth rate in the double digits for the industry. The total addressable market for their industry stands at $40bil. The industry is highly fragmented, dominated by smaller “mom and pop” players and is ripe for consolidation. Carriage currently has market share of about 1% and being one of the only publicly traded names in the space is an ideal acquisitor of for sale private companies. Utilizing their strong borrowing capacity and cash flows, they are positioned well to execute on their growth strategy going forward.
The company has positioned themselves well for future growth by venturing into the business of preneed funeral services, where they have a targeted 10-20% compound annual growth rate (CAGR) in selling their services to pre-deceased individuals. This should help boost their growth rates closer to the double digits forecasted for the overall market. They have demonstrated success in marketing these services, with a 50% growth in preneed funeral sales between Q2 2025 and Q2 2024.
We believe there is leverage in the company’s business model and that they will be able to lever their fixed infrastructure to enhance margins and improve profitability. This thesis is based on their financial performance, where they have demonstrated a CAGR of 6% on their topline revenue generation but a 7.1% increase in adjusted diluted earnings per share over the past ten years. They have also been able to get EBITDA margins, or earnings before interest, taxes, depreciation, and amortization to 32% from 29% in 2015.
They are also focused on returning capital to shareholders in the millions for debt repayments, which enhances equity share of the overall business, and by paying a reasonable dividend of $0.45 per share. In the past quarter, they repaid $24.1mil in outstanding debt and paid $3.5mil in dividends. They ended the period with a debt to EBITDA ratio of 4.2, down from a peak of 5.7 in 2019 and with a stated goal of getting it down to 3.5-4.0x.
With strong demographic trends behind the business and a focus on prudent financial management we believe that Carriage Services is poised for a sustained period of growth going forward.