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MagicDiligence (< 20)

Updates on BBSI, EPAX



February 11, 2008 – Comments (1) | RELATED TICKERS: BBSI , EPAX 


Two of our small cap Top Buys reported earnings last week - Barrett Business Services (BBSI) and Ambassador’s Group (EPAX).  Our position on BBSI has not changed, but the run up in price of EPAX has sent it out of the top 100 overall Magic Formula stocks.  Therefore it has been moved to the Dropouts list until (and if) it reappears on the screen.  Both stock reports have been updated.  Also, we’ve added 2 additional fields to the stats box in our stock reports: Price and Date Added, and Market Capitalization.  The former reflects the stock price and date on which we added the company to the Top Buys list.  This will allow accurate performance reporting later on.  For the latter, MD considers over 10 billion to be a large cap, 2-10 billion a mid cap, and anything under 2 billion as a small cap.


The less impressive results of the two came from Barrett Business.  As mentioned, a large percentage of Barrett’s revenues come from California, and the state is currently in a depression, with the company estimating 7% unemployment there.  This, combined with a higher workers compensation reserve cost led to a 24% decline in EPS.  The company expects 2008 results to be flat with 2007.  MagicDiligence is not too worried...  Barrett’s continuing geographical diversification should lessen the effect of California’s economic cycles, and the cycle could show signs of reversal by the end of the year.  At it’s current depressed price, Barrett has plenty of safety for these types of concerns.


Ambassador’s Group posted a larger loss for Q4 then in 2006, and still has seen a 25% drop in bookings for 2008 which will likely effect earnings this year.  The company has successfully began implementation of marketing changes to deal with the difficult environment for the travel business right now.  The Magic Formula screened this company when it was oversold, and the subsequent 12% run-up in price has brought earnings yield down, sending it off the screen.  Still, with a volatile stock like this, it’s very likely EPAX could make a return appearance to the Top Buys list in the near future.


One final note for today:  MagicDiligence has removed Harley-Davidson from the Dropouts list.  The company actually dropped out of the Magic Formula screen before we launched, and so was never formally recommended as a Top Buy.

1 Comments – Post Your Own

#1) On February 19, 2008 at 10:09 PM, DoubleAmerica (96.04) wrote:

I agree with your analysis of BBSI and I expect the stock to sit relatively flat for the near future.  I think management will handle the economic situation in Calfornia well and prepare themselves to ride the economic wave back up.  They certainly feel there are opportunities outside of California and they are beginning to enter those markets, which is making good use of all that cash they make.  I also agree that there is a large amount of safety built into this stock at its current valuation and can't see it going much lower at all, if any.  Looks like a good risk/reward ratio to me.

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