Stock of the Week: A Resourceful Business With a Huge 35% CROCI
Alpesh Patel|October 23, 2023
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This year’s boom in AI has businesses scrambling to hire specialists in the technology.
And this week’s Stock of the Week is perfectly positioned… literally and figuratively… to benefit.
It’s an $8 billion human resources firm that’s based in the heart of Silicon Valley. In addition to helping companies find the right talent, it offers risk consulting, internal audits and IT consulting.
That diversification is paying off… to the tune of $7 billion in annual revenue.
It is also debt-free… has an outstanding 35% CROCI (cash return on capital invested)… and is undervalued.
And it’s far less volatile than the broader market.
Get the details on the company – including its ticker – in my latest video.
Click on the image below to watch it.
Hi, Manward family, and welcome to Stock of the Week. I’m Alpesh Patel, hedge fund manager, as you know. And as you will also know, my team shortlists a group of companies for me each week which they think might be interesting for me to speak of. And then I narrow that down to one in particular.
And this week’s Stock of the Week is Robert Half (RHI). This is a company which is involved in human resources, so in hiring. It’s based out of Menlo Park, and it was founded in 1948. So it was there before Silicon Valley was based out of Menlo Park. And, of course, as Silicon Valley has grown, that’s been a core component of Robert Half’s business.
It is, however, by now a member of the S&P 500, so it’s not a small company by any means, which is good to know. It also does independent risk consulting, internal audits and information technology consulting as well. It helps with temporary, permanent and what’s called outcome-based staffing – in other words, project-based staffing for both in-person and remote positions in the finance, accounting, technology, legal marketing and administrative fields.
And you better believe that the company is up to speed with the new growth in AI and the desire for companies to hire AI specialists as well.
Most of the sales are in the U.S., and it has a market cap of – wait for it – $8 billion. $8 billion. It has revenues of around $7 billion. So sales of $7 billion and a market cap of $8 billion. That’s not small, obviously, by any means. It’s debt-free as well, which is good.
So speaking of numbers, let’s have a look.
The Growth-Value-Income rating on my algorithm is 7. Now, that’s a proprietary algorithm I created to measure the valuation of a company, the revenue growth, the dividend yields… and weigh those factors and then put it into a score. Anything above 7 meets my criteria.
The forecast P/E ratio is at a multiple of 20. In other words, the current price compared to the forecast profitability, at 20, is not necessarily cheap, but it’s certainly not expensive, either.
Not when you consider that cash return on capital invested (CROCI) is 35%.
Now, what does that mean? That means that CROCI, the formula created by Deutsche Bank and used by Goldman Sachs Wealth Management for its wealthiest clients – and you can learn more about it right here – at 35.5% puts Robert Half among the best companies out there. And that tends to suggest better stock market performance in the future. Not guaranteed. But it tends to suggest it based on all the data that we know about that formula.
The Sortino is a measure of reward versus risk. In other words, the return versus the volatility of missing it. It’s not fantastic, but it’s not too bad, at 0.28. Ideally, I’d like for it to have been a little bit higher, but it’s fine. Volatility is at only 15%. So it’s not a very volatile company, which is always good to know.
It seems to have formed a base around the $75 mark, and it’s been around there for over a year now. Now, it’s hit a high of over $120 in the recent past. So that’s an obvious target to aim for. Especially when you consider that on a discounted cash flow basis, it’s undervalued by 31%. That doesn’t guarantee it’ll go up. It isn’t the only measure of valuation, but it suggests that there is upside in the company.
That’s your lot for this one. A lot of positives there. It gives you an insight, just a “tip of the iceberg” of the kind of research we do in a lot more detail in GVI Investor. So hopefully you found an insight into that and the approach that we use. And you’ll see that we do look into a heck of a lot of things for every company.
Thank you very much.
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