On the heels of an anonymous short sellers’ drive-by shooting, Barrett Business Services Inc. (BBSI) shares are at a 52-week low and off over 60% from the January 2014 high print. A recently released research opinion full of misleading conclusions has given long-term investors an opportunity, at a bargain price, to buy a very high quality business in an industry sure to be increasingly in demand. I have been a BBSI shareholder since 2008. At current prices, this is the best entry point I have seen in many years.
BBSI is magic-formula, cash generating business in a service industry, with very low capital requirements (FCF=earnings), recurring revenue from 95% client retention, no meaningful competition, and 30% annual organic revenue growth over the last four years. Revenue has grown 14x since 2001.
With a low industry penetration and the recent completion of a two-year process to more than double their client serving capacity, BBSI is very likely to at least double earnings in 3-4 years. Now, priced at 8.3x TEV/2014 EBIT and 13x PE (thanks Copperfield), BBSI owners should benefit from multiple expansion and enjoy share price upside of more than 100% over the same period.
Wait, did I mention BBSI has no net debt, tremendous operating leverage, and a track record of smart capital allocation?
Here is a link to the full presentation with better formatting and charts: