How to buy $1 bills for less than 25 cents
GARP investing is all about buying the right stocks, run by the right management teams, and importantly at the right price. Not an easy combination to find in today’s markets. However sometimes, just such a company could be hiding directly under one’s nose.Take ClearStar, a tech-enabled Human Capital Integrity specialist - who after a period of heavy IT/software investment - now enjoys 1st mover advantage within the multi-$bn US employment & medical screening market. Indeed having constructed a formidable ‘tech-moat’, the firm is quickly establishing itself as the ‘go-to’ provider and ‘straight through’ processor of such automated services.
Going forward, the trick will be to maintain momentum – 2018 sales were up 13.1% LFL to $20.1m ($17.8m LY) delivering +$154k EBITDA (pre SBPs vs -$391k LY) – and reap the rewards of favourable operating leverage and 35%+ EBITDA drop through rates. Plus, with approx 95% of revenues in dollars, there’s a natural hedge for UK investors against £ weakness in the event of a ‘no deal’ Brexit.
But that’s not the best part. The stock at 59p, trades on only 1.2x EV/sales vs 5.2x for peers, and at a wide discount to our 135p/share valuation. In fact, push the clock forward to 2023, we think the price could reach 250p – and that would not be expensive either. Representing a 4.2x money return, or a 33% pa ROI. Moreover, there is a sense of inevitability about all of this. At some point we suspect the penny will drop as investors wake up, mean reversion will kick in and the price will re-rate sharply upwards.
Finally, if you’d like to meet CEO Robert Vale and Interim CFO Jennifer Balleza in person, then please email to reserve your place at the 5.30pm corporate presentation on Thursday 16th May at Luther Pendragon’s offices (48 Gracechurch Street, London, EC3V 0EJ).
Equity Development enables companies to become better understood and supported by investors. Since our launch in 1996 we have consistently focused on helping our clients improve their communication and relationships with both existing and potential shareholders. Our clients have come from a wide variety of sectors and domiciles, are both private and quoted and range in size from micro-cap to $multi-billions. We offer free access to company research notes written by experienced analysts. These notes include detailed forecasts, financial models and a fair value. We host regular Private Investor Forums at which investors have the opportunity to hear company directors present, and to ask questions. These are free to attend. We broadcast live Webinars with company management that include active Q&A. We also make the recordings available online. We arrange face to face meetings between private investors and company management. We are active users of Twitter, commenting daily on company news, share price moves, Directors’ Dealings, Equity Development Research Notes & Events.
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