Barrett Business services stock has been cropped by Wall St. from $27 last summer all away down to a new 52 week low today at under $12/share. This was apparently in response to the Q1 2008 conference call describing a dramatic drop in earnings compared to Q1 2007 $0.15--> $0.01/share fully diluted and guidance that the Q2 EPS will be about 50% of the comparable value from 2007 Q2.
Despite this, BBSI's balance sheet is extremely strong with no bank debt, 30% insider ownership and recent insider buying. Fundamentals are very compelling P/E 9 P/B 1.2 Dividend 2.7% with a payout ratio of only 23%, great free cash flow of $13 million/year and double digit ROE.
The management is well respected, in particular the CEO Bill Sheretz, who has a lot of "skin in the game". He is the largest shareholder (3.6 Million shares).
The major vunerability of this pick is that it is maximally exposed to the area of the USA hardest hit by the recession economics: California.
If the management can control costs and maintain scalability of their business plan, I expect that they will survive this downturn even if it is prolonged by several years and go on to reward the long term investor.
I have bought small increments at $16, $15 and $12.
Motley Fool's view
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