The ASX small-cap stock Propel Funeral Partners Ltd (ASX: PFP) is currently trading at $4.74. As the chart below shows, it's down around 20% since the start of 2025. However, I think it's a great time to invest for the long term.
Propel is the second largest private provider of death care services in Australia and New Zealand. It currently operates from 202 locations, including 40 cremation facilities and nine cemeteries.
I think it has very defensive earnings because of the sector that it operates in. But, there's more to it than just ultra-defensive demand. Its bottom line could grow in a number of different ways, each one adding to the growth outlook. So, let's look at those growth avenues.
Image source: Getty Images
Volume growth
The ASX small-cap stock is exposed to some of the longest-term tailwinds in the market, which could drive future demand for Propel's services.
According to Propel, a 'death boom' is expected. Death volumes are expected to increase at a compound annual growth rate (CAGR) of 2.6% between 2025 and 2030 and 2.9% between 2031 and 2040.
Having generally steady revenue growth is a very appealing attribute for the business.
Revenue per funeral
The company's revenue could grow faster than the volume growth, thanks to the rising funeral prices.
Propel's average revenue per funeral is growing at roughly the speed of inflation, which is good protection against cost inflation.
Since FY15, the company's average revenue per funeral has increased at a CAGR of 3.1%.
I think ongoing growth here could help the company's profit margins.
Profit margins increasing
While the top line is likely to continue growing in the coming years, I think the bottom line could rise even faster thanks to improving profit margins. Scale benefits are a powerful financial force that I expect will assist the company's net profit line in moving forward. The company is also utilising acquisitions to become larger and grow its geographic footprint.
In the FY25 first half result, the company grew by 12% to $115.2 million, while operating net profit after tax (NPAT) increased 21.1% to $12.2 million.
I'm not expecting the ASX small-cap stock's net profit to grow at almost double the pace of revenue forever. But the HY25 result demonstrated how the company is becoming increasingly profitable for shareholders.
Considering the Propel share price is usually valued by how much profit the business makes, the company's future profit growth seems very promising. I'm also hopeful of a growing dividend if the profit can continue rising.
