Barrett Business Services, Inc. (BBSI)

(Zen Buddha Silence by Marilyn Barbone)

(Image: Zen Buddha Silence, by Marilyn Barbone)

September 27, 2020

We continue with examples of Boole’s quantitative investment process in action.

Recently, we looked at the following companies:

Delta Apparel, Inc. (DLA): http://boolefund.com/delta-apparel-inc-dla/

AdvanSix, Inc. (ASIX): http://boolefund.com/advansix-inc-asix/

Universal Technical Institute (UTI): http://boolefund.com/universal-technical-institute-uti/

Burnham Holdings Inc (BURCA): http://boolefund.com/burnham-holdings-inc-burca/

Select Interior Concepts (SIC): http://boolefund.com/select-interior-concepts-sic/

Manitowoc (MTW): http://boolefund.com/manitowoc-mtw/

Ciner Resources LP (CINR): http://boolefund.com/ciner-resources-lp-cinr/

Global Ship Lease (GSL): http://boolefund.com/global-ship-lease-gsl/

Alico, Inc. (ALCO): http://boolefund.com/alico-inc-alco/

Genco Shipping (GNK): http://boolefund.com/genco-shipping-gnk/

SEACOR Marine (SMHI): http://boolefund.com/seacor-marine-smhi/

Tidewater (TDW): http://boolefund.com/tidewater-tdw/

TravelCenters of America (TA): http://boolefund.com/travelcenters-america-ta/

Teekay Tankers (TNK): http://boolefund.com/teekay-tankers-tnk/

Ranger Energy Services (RNGR): http://boolefund.com/ranger-energy-services-rngr/

Macro Enterprises (Canada: MCR.V): http://boolefund.com/macro-enterprises-mcr-v/

This week, we are going to look at Barrett Business Services, Inc. (BBSI).  From the company’s website:

“BBSI is a leading provider of business management solutions, combining human resource outsourcing and professional management consulting to create a unique operational platform that differentiates it from competitors.  The Company’s integrated platform is built upon expertise in payroll processing, employee benefits, workers’ compensation coverage, risk management and workplace safety programs, and human resource administration.  BBSI’s partnerships help businesses of all sizes improve the efficiency of their operations.  The Company works with more than 6,500 clients across all lines of business in branches across the nation.”

BBSI has a market cap of $378 million, with $130 million in cash and $30 million in debt.

 

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First we screen for cheapness based on five metrics.  Here are the numbers for Barrett Business Services:

    • EV/EBITDA = 5.52
    • P/E = 8.52
    • P/B = 2.09
    • P/CF = 7.50
    • P/S = 0.41

EPS (earnings per share) for the trailing twelve months is $5.81, while the current stock price is $49.50.

Step Two

Next we calculate the Piotroski F-Score, which is a measure of the fundamental strength of the company.  For more on the Piostroski F-Score, see my blog post here: http://boolefund.com/piotroski-f-score/

BBSI has a Piotroski F-Score of 7.  (The best score possible is 9, while the worst score is 0.)  This is good.

Step Three

Then we rank the company based on low debt, high insider ownership, and shareholder yield.

We measure debt levels by looking at total liabilities (TL) to total assets (TA).  BBSI has TL/TA of 77%, which is decent.

Insider ownership is important because that means that the people running the company have interests that are aligned with the interests of other shareholders.  At BBSI, insider ownership is approximately 4.5%.  This is OK.

Shareholder yield is the dividend yield plus the buyback yield.  At BBSI, dividend yield is 2.45%.  The buyback yield is zero.  Thus, shareholder yield is 2.45%.  (Historically, the company has bought back shares at a rate of about 0.6% a year, and very well may do so again.)

Each component of the ranking has a different weight.  The overall combined ranking of BBSI places it in the top 50 stocks on our screen, or the top 2% of the more than two thousand companies we ranked.

Step Four

The final step is to study the company’s financial statements, presentations, and quarterly conference calls to (i) check for non-recurring items,  hidden liabilities, and bad accounting; (ii) estimate intrinsic value—how much the business is worth—using scenarios for low, mid, and high cases.

See BBSI’s investor presentation from September 2020: https://d1io3yog0oux5.cloudfront.net/_52dbedc5e4a50246ec4578906796ccef/barrettbusiness/db/393/3388/pdf/BBSI+Investor+Presentation+-+Sept+2020.pdf

Also, check out the following: https://valueinvestorsclub.com/idea/BARRETT_BUSINESS_SVCS_INC/4870001850#description

(To access the link to valueinvestorsclub.com, you may have to create a guest membership, which is free.)

Intrinsic value scenarios:

    • Low case: EPS (earnings per share) may be $3.70 on the low end, due in large part to the impact of the coronavirus on the U.S. economy.  BBSI is currently trading at a P/E of 8.52.  Assuming the P/E stays the same, the stock would trade at $31.52.  That is 36.3% lower than today’s $49.50.
    • Mid case: EPS for the trailing twelve months is $5.81.  The P/E should be at least 15.  That translates into a stock price of $87.15, which is over 75% higher than today’s $49.50.
    • High case: Normalized EPS may be $7.00 (and eventually growing).  BBSI may easily be worth a P/E of 20.  That translates into a stock price of $140.00, which is over 180% higher than today’s $49.50.

 

BOOLE MICROCAP FUND

An equal weighted group of micro caps generally far outperforms an equal weighted (or cap-weighted) group of larger stocks over time.  See the historical chart here:  http://boolefund.com/best-performers-microcap-stocks/

This outperformance increases significantly by focusing on cheap micro caps.  Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals.  We rank microcap stocks based on these and similar criteria.

There are roughly 10-20 positions in the portfolio.  The size of each position is determined by its rank.  Typically the largest position is 15-20% (at cost), while the average position is 8-10% (at cost).  Positions are held for 3 to 5 years unless a stock approaches intrinsic value sooner or an error has been discovered.

The mission of the Boole Fund is to outperform the S&P 500 Index by at least 5% per year (net of fees) over 5-year periods.  We also aim to outpace the Russell Microcap Index by at least 2% per year (net).  The Boole Fund has low fees.

 

If you are interested in finding out more, please e-mail me or leave a comment.

My e-mail: jb@boolefund.com

 

 

 

Disclosures: Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Boole Capital, LLC.

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