Jackson Hewitt's Future, by the Numbers

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Thursday's front page of The Wall Street Journal's Money & Investing section highlighted the current beef certain investors have with H&R Block's (NYSE: HRB) blockhead diversification into businesses unrelated to its core tax-preparation franchise. In other words, just the type of work that Hidden Gems Pay Dirt pick Jackson Hewitt (NYSE: JTX) focuses on.

Jackson Hewitt holds only about 4% of the market for individual tax returns, which is a far cry from what industry leader H&R Block holds -- around 16%. But while mighty H&R Block deals with a disastrous foray into subprime mortgages, Jackson Hewitt just announced an ambitious goal to grow the bottom line over the longer term.

The earnings aspirations were at the top of Jackson Hewitt's first-quarter earnings release Thursday morning. Total sales and earnings didn't do much, as this quarter marks the first after a busy tax season, and the company said it only books about 2% of its total annual revenue during its first and second quarters. For the first quarter, revenue was about flat at $5.9 million and it lost $0.65 per share, which is also normal outside of tax season.

The tax-filing period that just ended didn't turn out to be smooth sailing for Jackson Hewitt, because HSBC (NYSE: HBC) stopped underwriting certain loan products on behalf of the company, and worse yet, a franchisee with 125 locations was accused of filing fraudulent tax returns. The company said an internal review "did not find evidence of corporate employee participation in, or knowledge of, the allegedly fraudulent tax return preparation activities described in the Department of Justice lawsuits"; government investigations are continuing.

Despite the near-term noise, Jackson Hewitt plans to grow revenue 10% to 15% annually over the next five years and diluted earnings 15% to 20% over this time. Throw in a 2.5% dividend yield and ample free cash flow to buy back shares, and the stock definitely looks interesting at just less than 13 times forward earnings. Barring any serious improprieties found in investigations, this is a stock to keep on your Foolish watch list.                                                                         

For related Foolishness:

• A Taxing April for Jackson Hewitt
• 3 Stocks That Missed the Mark