Despite the occasional multimillion-dollar bonus, Wall Street is actually a pretty stingy place. So when the Street hands you a gift, you might consider taking it.
Today's gift might be a significant drop in the share price of consulting firm and Motley Fool Stock Advisor recommendation Resources Connection
Revenue in the quarter was up more than 18%, and actually just a bit above the average estimate. Margins slipped at both the gross and operating levels, though, and operating income actually fell 2% for the quarter. The company recouped some of this down on the income statement, but the end result was net income growth of less than 5%.
Right about here is where you expect to start hearing the wails of anguish as mo-mo investors hurtle themselves out of windows . or at least out of the stock. But I'm not a mo-mo guy, nor am I really all that bothered by it. Sure, I'd rather see earnings growth of 20% or more, but the reason the company didn't achieve such performance is worth exploring.
Higher SG&A expenses appeared to be a big part of the problem. The company spent more money on recruiting and what it called "investment in client service." Corporate-speak aside, there's another factor at work here: Resources Connection's revenue growth has outstripped its current SG&A infrastructure, and the company needs to catch up. That said, it's fair to point out that while Resources Connection has generally done well hitting its revenue and gross margin targets, its operating margin target has been a little more elusive.
At a basic level, I still like this business. I think it has some meaningful advantages relative to Robert Half
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
