As markets turn green across the globe today, one stock is stubbornly refusing to join in the fun: Resources Global (Nasdaq: RECN). This Motley Fool Stock Advisor recommendation reported its fiscal Q1 2009 earnings yesterday, and despite management's earnest efforts to spin the news positively, investors aren't biting.
Is that the right call?
In a word: No. Resources Global (RG) did a fine job last quarter:
- Sales grew nearly 7% year over year -- not great, but not bad in the midst of a global recession, either.
- Gross margin tacked on 110 basis points, and with selling, general, and administrative costs basically holding steady, operating margins improved a full percentage point to 10.4%. Thus, RG maintains its slight lead in operating profitability over Robert Half, even as it continues to lag foreign consulting firms along the lines of Satyam (NYSE: SAY), Infosys (Nasdaq: INFY), and Wipro (NYSE: WIT).
Improved margins higher up the income statement helped RG net an 8% improvement on the bottom line last quarter. When paired with share buybacks, those fatter margins also boosted the firm's per-share take by a whopping 17% ($0.27 per share, diluted).
The bear case, and why it's wrong
So why is RG down today? According to the press, analysts are to blame, as they point to the global economic slowdown and opine sagely that what's bad for business is bad for RG's business, too.
Hard to argue with that one. When an industrial stalwart like GE (NYSE: GE) is yielding 5%, and when powerhouses like Caterpillar (NYSE: CAT) and Boeing (NYSE: BA) are selling for single-digit P/Es, you know times are hard. So why am I once again feeling bullish on RG?
Here's why
The world economy is in a mess. Right now, everyone's too busy stabilizing the system to worry about making sure this doesn't happen again. But as surely as night follows day, legislation follows an economic crisis. Just as the Great Bubble-Burst of '01 brought us Sarbanes-Oxley, the Credit Crisis of '08 will bring new regulations, new accounting standards -- in short, a whole slew of new rules with which businesses will need to comply. Bet on it.
And when the new rules come out, and companies need accounting and legal expertise to help them dot their corporate "i"s and cross their corporate "t"s, RG will be their to provide it, and profit from it. Bet on that, too.
What's RC done for us lately? Find out in:
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