Description

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:

https://www.dropbox.com/s/p5nszd1fvws4nv7/BBSI%20writeup%20-%20final%20v1.0.pdf?dl=0

Catalyst

1. Clarification about the reserves on next earnings call, late October.
2. Continued growth this quarter puts focus back where it belongs which is on the value of this high-quality enterprise.
3. Annual earnings guidance starting next quarter.  Going forward, the company will offer quarterly rolling annual guidance.