Barrett Business Services: Looking Good For The Future (NASDAQ:BBSI)
Barrett Corporate Services (NASDAQ:BBSI) provides business management solutions in the United States. It creates a management platform that combines methods from the field of human resource outsourcing with a knowledge-based strategy from management consulting. She Providing expert employer services, entering into a customer service agreement to create an employment relationship with each client company and taking responsibility for the payroll of the client’s existing workforce, employee compensation coverage and other administrative duties. In addition, they offer staffing and recruitment services, contract staffing and direct placement. The company also recently announced its results for FY22 and Q4 FY22. Despite several macro headwinds, they delivered solid annual results with increased sales and net income. In this report, I will analyze its financial performance. I believe they are undervalued and can offer their shareholders significant returns over the long term. Therefore I make a purchase recommendation BBSI.
BBSI recently released its results for Q4 FY22 and FY22. Revenue for FY22 was $1 billion, up 10.3% compared to FY21. I believe the main reason for the increase was an increase in total gross invoices. Their total gross bills increased by 13% in FY22 compared to FY21. I believe the increase in total gross settlements was primarily caused by an increase in average WSEs and higher average settlements per WSE. Net income for FY22 was $47.2 million, an increase of 24.1% compared to FY21.
Revenue for Q4 FY22 was $271.9 million, an increase of 6% compared to Q4 FY21. I think the growth in PEO gross bills was the main driver of the increase. Compared to the fourth quarter of FY21, total PEO settlements increased 8% in the fourth quarter of FY22. I believe the main reasons for the increase in PEO gross settlements were the growth in net adds and the higher average settlements per WSE. In Q4 FY22, total PEO billings increased 15% in the East Coast, 13% in Mountain States and 13% in Southern California compared to Q4 FY21. Net income for Q4 FY22 was 11.5 million US$, an increase of 8.6% compared to Q4 FY21. They reported strong full-year and quarterly results despite challenging market conditions, which is pretty impressive and shows how resilient the business is in adverse circumstances.
BBSI is trading at the $89.5 level. In the chart above, we can see that it has a resistance level at $100. The stock first attempted to breach $100 in 2014 and has unsuccessfully tested it four times since then. It shows the importance of the $100 mark. As it is currently near the resistance zone, I think one should wait until the stock breaks the level before adding any new entries. If it manages to break the level, the stock could have a bull run and offer significant returns for its shareholders, in my opinion.
Should you invest in BBSI?
The FY23 revenue estimate is $1.12 billion, which is 6.6% higher than FY22 revenue. Despite the tight job market and rising interest rates, management has issued an upbeat sales forecast, which is a positive sign. I think they could hit the sales targets; I say that because the company is expanding its portfolio. They recently launched three new products:
- BBSI Benefits through which they now offer health insurance.
- BBSI You is a learning management portal with various catalogs such as Risk and Safety and Professional Skills.
- BBSI Recruitment.
In addition, they are entering a new market with their asset-light model. I believe these three products and expansion into new markets will help increase sales and income in FY23.
Speaking of the review part. I will use two rating metrics to judge his rating. The first ratio is P/E, calculated by dividing the stock price by EPS. They have a P/E ratio (FWD) of 12.79x compared to the sector ratio of 16.74x. It shows they are undervalued. The second ratio is the EV/Sales ratio, which compares the company’s enterprise value to its annual sales. They have an EV/Sales (FWD) ratio of 0.43x compared to the sector ratio of 1.67x. After looking at both metrics, I believe they’re undervalued and have a lot of growth potential.
Due to client layoffs and a lack of work in the temp pool, jobless claims tend to rise when the economy in their markets is weak. Increased state and federal unemployment tax rates caused by an increase in jobless claims are often impractical to pass on to customers at the same time because of customer service commitments already in place or competitors squeezing lower prices. Increases in their state and federal unemployment tax rates could significantly affect their financial performance, particularly early in the year when payroll tax rates are at or near their highest levels.
The company reported strong full-year and quarterly results with growing sales and net income despite significant inflationary pressures, supply chain difficulties and a tight labor market. They look fundamentally and technically strong. In addition, management has issued an upbeat revenue forecast for FY23. I believe they have great growth potential and can provide significant returns to their shareholders over the long term. Therefore, I give a buy recommendation for BBSI.