Staffer Shoots for Stars

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Upped guidance is a good thing, right? A reason to celebrate? Maybe. But does it make a company worth 30% more than the day before? That all depends on the company, so let's take a look at today's screamer, Kforce (Nasdaq: KFRC).

We're talking about a Web-based staffing firm, an outfit akin to Kelly Services (Nasdaq: KELYA), Spherion (NYSE: SFN), or Manpower (NYSE: MAN). If you've ever been a "Kelly girl" -- as I was -- you know how it works. The company rents you out for a fee and pays you a smaller fee. Nice work, if you can get it. And lately, there's been evidence that there's an increasing amount of this type of business to be had.

Kforce has been taking its share of whipping over the past few months. You can see the welts here. You can't say the lumps were completely undeserved. After all, we're talking about a company that put up some problematic numbers last quarter. Gross margins were down 0.5% year over year, while SG&A expenses grew another 0.7%. Net income came in at half the level of the prior year quarter's. As of June, there was only half a million cash left on the balance sheets. Yes, there's a pricey acquisition to consider, but there are other things here that need some 'splaining, as Ricky might have said to Lucy.

Which brings us back to today's upped third-quarter guidance. There really wasn't so much up in it. The revenue target was tweaked to $183 million to $186 million, but the earnings range was merely narrowed, with the low end sliding up to $0.13 while the high end remained at $0.15 per share. Still, if management can hit that $0.15 mark -- and I'll bet you a box of Krispy Kremes (NYSE: KKD) that they will -- the firm will have earned as much in the quarter as it did all of last year. That would put it at a growth rate north of 200% for the trailing 12 months.

Even after today's giant leap forward, shares trade at a P/E of 50. If management and analysts (who look for another 100% earnings growth in 2005) are anywhere near correct in their predictions, Kforce looks like it's still a bargain today.

At first glance, Kforce looks a bit like a Hidden Gem. Take afree trialof the Fool's small-cap newsletter to find out which companies made the cut this month.

Seth Jayson regrets nothing about his Kelly Girl experience. He has no position in any company mentioned. View his Fool profile here.