Little Engine's research shows that his comparisons are not completely analogous or appropriate for evaluating the price performance or value of Firamada Inc., NASD OTC-BB: FAMH. Many of the companies, although grouped in the same industry in many indexes, actually have core businesses that are altogether different, or in lower end staffing solutions, or in Employee Leasing like the new acquisition Myriad. For example,
Message 3497226, LE cites ESOL which is an employee leasing firm and my response to that post clarifies my position.
Sales per share, although important, is not the only tool in analyzing the value of an issue. For Example, ASIS has a market capitalization of over 60MM, almost 3 times last years sales, a PE ratio of 27.8 with only 6.4MM shares out. Firamada's current market capitalization is only about 1.25 times last years sales (rough estimate). Also, Little Engine posted the sales per share for these companies, including FAMH. It is interesting to note that the price to sales ratio, which is derived by taking the current price and dividing by the latest 12 months sales per share of ASIS is 2.17, more pricey by a factor of 132 percent than the industry average and 125 percent above the S&P 500, while FAMH has a price to sales ratio of only .73 which shows an undervaluation of FAMH. The following is my own personal analysis, and sources for figures are
all compiled from Media General Financial Services and Hoover's.
Here is why the comparisons are not valid on just the first 3 companies listed in LE's original post: Message 3500379.
REMX:
OVERVIEW:
Temporary staffing primary in low end clerical and light industrial work.Also offers a form of on site management coordinating the temp workers. 200 offices, over 110 of which are independently managed (franchised).
Approximately 480 employees. NASD latest quote 24 1/4.
Source: Hoovers.
ANALYSIS:
REMX is currently trading at a PE of only 19.4 with an eps of 1.25 and only 8.9MM shares outstanding. It seems like a good value since both its eps and sales have increased steadily over the past few quarters, and it is rated as a strong buy according to Zack's first consensus. In addition, their ratio of income tax to Gross Sales is actually lower than Firamada's( unaudited balance
sheet ) at .02 versus .033. IMO, the overhead of the offices including the franchised locations increased their cost of sales. Firamada, as of the balance sheet date had only 4 offices.
ALRC:
OVERVIEW:
Provides technical support for Fortune 1000 companies from mainframe and network support to help desk personnel. Primarily a short and long term contracting company. Currently has 57 branch offices with 477 employees.
'97 sales totaled 263MM.
ANALYSIS:
Although ALRC has had steady quarter by quarter increases in revenue and eps, their growth rate on their net income is only 7 percent, while their one year gross is over 30 percent. This might account for their moderate buy rating. Also, although their core business model focuses on the very lucrative IT profession, they seem to primarily be a contracting company without permanent placement as a major focus of their business model. Also, their selling, general, and administrative expenses were a whopping 70 percent of their gross operating profit for fiscal '96 ('97 data unavailable).
CDI:
OVERVIEW:
Huge company, very diversified with operations in 3 countries and segments from IT and scientific staffing to low end clerical to contingency fee recruiting for middle managers. NYSE at 46 11/16, and a market cap of nearly 1 billion. Over 1,800 employees and over 600 offices, a great deal of which is franchised. Rated a moderate buy with a PE of 23.5.
ANALYSIS:
Steadily increasing revenues over the past 3 quarters, as well as eps. A price to sales ratio of only 0.63. A nice company, but once again, their administrative expenses, ie overhead, are at 73 percent of gross operating profits.
In sum, although there are many companies which operate in similar areas as FAMH, Firamada's diversification, IMO, coupled with their lower operating costs and overhead are dissimilar enough to warrant closer inspection beyond the implications that the company may be misrepresenting the numbers. The audit, if anything, will answer many questions. Even if you take the gross sales from the balance sheet, deduct expenses and apply a 40 percent tax, the net leaves .044 eps at that time. IMO, you cannot at this point, say with a blanket statement that FAMH lags other staffing companies, or use generalized comparisons with companies having a different business model and focus and level of development to say FAMH is overvalued.
Jin.
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