Thursday, August 7, 2008

Barrett Business Services (BBSI) – A Follow Up

One problem with Value Investing is that sometimes in trying to determine when to buy a Stock, an investor will try to wait too long, and miss an opportunity. On July 3, 2008, I posted on The DIV-Net on a company called Barrett Business Services (BBSI).

The company had no debt, lots of cash, high insider ownership, a candid management team, and had fallen 60% from its high. In short, it was almost a wet dream for a Value Investor.

I advised waiting for second quarter earnings to be released because I was worried about its exposure to the economy in California. Or as I put it back in July:

“I wouldn’t jump into BBSI just yet as I expect the price to go into the single digits as the economy in California deteriorates further.”

The company reported on July 29, and the numbers were better than investors thought, and even more important, management moderated previous comments on the state of business out in California. The stock popped up 5 points the next day, up 35%.

You can see the difference in tone between the first and second quarter conference calls regarding business conditions:

April Commentary

“Monitoring collection trends very closely due to economic situation….very little visibility in directional trends of our revenue stream…numerous cross currents in customer base which are mitigating market share gains…The current economic climate warrants a very careful outlook into 2008.”

July Commentary

“Things are bumping along; the economy’s not that much better, it’s not that bad. We continue to still sign a lot of new customers which is very good and portends that should be stabilized and we’ll exceptionally well, I believe.”

“I don’t think we could have turned this quarter or given you the estimates if we didn’t see stability in the market….I haven’t seen any branches run off cliffs, I haven’t seen any segment of our business just disappear overnight, so that makes me relatively comfortable that we’re holding our own.”

The last chapter has yet to be written on BBSI during the current cycle. Business seems to be stabilizing in its core areas, but this could be a temporary plateau before further deterioration. It could be that my prudence will pay off in the end and that we will see single digits on the stock price before this cycle is over.

This article was written by The Stock Market Prognosticator. You may email questions or comments to me at info@brittaincapitalmanagement.com.

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