Roger, I noted your comment on another thread that WORK looks cheap here, and I wouldn't argue with that it has a low PE and is growing pretty well.
But I'm wondering about the margin deterioration over the last few quarters, and wondered if you (or others) could shed any light on it. The quarterly EPS numbers were held up artificially by the sale of PurchasePro.com stock they bought last September and sold during the 2nd-4th quarters (this accounted for about $9.2 million of $24.6 million reported net for the year).
If you back that out (assuming a 42% tax rate), net margins dropped from 3.8% in the second quarter to 3.2% in the third to 1.5% in the fourth. The trend is also evident in operating income as % of revenue, consecutively 7.3%, 7.1%, 5.9%. We don't see that pattern in the prior year, so I don't think its normal seasonality at work.
Even if you take out the stock sale, they would've earned about $1.11 per share last year, which makes them cheap at current prices if they can get margins back on track. But I didn't find any discussion of the quarterly margin changes in the 10-K - an anomaly of the practice of never actually discussing the fourth quarter sequential performance in the 10-K, as they would have if there were a 10-Q for the quarter as well.
I might pick up some right now for what looks like a good technical run, but based on what I see now, I'd be concerned about holding over earnings (which should be out around Labor Day, I think). There aren't any analysts with profit projections (that I found, anyway), so sequential and year-over-year comparisons may drive the perceptions of performance. This could be even worse come second quarter, as they are going to have a tough time making year-over-year comparisons given the inclusion of the PurchasePro stock sales in the year-ago quarter.
Any perspective on this?
Regards,
Fund |
