No matter how many times I review the company, I always go into a TALX (NASDAQ:TALX) earnings report thinking I'll be reading about baby powder. That couldn't be farther from the truth; in competition with ADP (NYSE:ADP) and Paychex (NASDAQ:PAYX), TALX is actually a leading provider of payroll-related and human resources services. Now that we know what TALX does, let's take a look at how well it's doing.

Wall Street Wisdom:

  • General consensus. Wall Street analysts must be allergic to talcum powder; only five of them follow this $1 billion company. Those who take a look, though, tend to like TALX. The stock rates two "buys" and three "holds," with nary a sell in sight.
  • Revenues. TALX is on fire. When it reports its fiscal Q3 2006 numbers tomorrow, analysts expect it to announce 21% greater revenues than it collected one year ago.
  • Earnings. Profits look even better. Analysts expect to see 40% growth, to $0.21 per share -- and they've consistently underestimated the company's profits in each of the past seven quarters.

Margin watch:
To understand how TALX has consistently proven the analysts' estimates conservative, you simply need to examine the company's upward trends in margins. Both consecutively and year over year, the trends are positive across the board.

Marg.

6/04

9/04

12/04

3/05

6/05

9/05

Gross

57.5%

57.9%

58.9%

59.1%

60.5%

61.7%

Op.

16.8%

17.3%

19%

21.2%

23.5%

25%

Net

7.9%

8.1%

9.2%

10.5%

13.5%

14.4%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Valuation metrics:
It's not often you find well-run businesses selling at bargain prices, and TALX is no exception. The company's shares change hands at 40 times trailing earnings and 37 times trailing free cash flow, which looks pretty steep, even for a firm projected to grow earnings at an annualized 24%. But did I mention how the firm keeps outperforming analyst projections?

Foolish lookout:
TALX is a primo business trading at premium prices. I suspect much of its price depends on the firm continuing to beat expectations and accelerate its margin growth. If the company misses estimates tomorrow, or if you see a slowdown or reversal in margin expansion -- look out below.

Fool contributor Rich Smith does not own shares of any company named above.