When a company grows earnings by more than 50% year over year and beats analyst estimates, you usually expect to see the market treat the stock reasonably well. Well, a funny thing happened to temporary-worker resource Labor Ready
The company's stock swooned by nearly 20% yesterday despite a solid quarterly report and consistent forward guidance. The only real trigger I could find was an analyst's downgrade of the stock based upon valuation.
In any case, revenue climbed a bit more than 10% for the quarter, with the recently acquired CLP Resources chipping in for about half of that growth. Margins improved significantly, and operating income grew 41% for the quarter.
"Same-branch" growth was solid at 6.2% for the locations open for a year or more, while new branches were responsible for less than 1% of the total growth. While U.K. revenue declined by 4%, Canadian revenue was up 15%, and same-branch performance pretty much matched that level.
There is no shortage of staffing services out there, and Labor Ready is considerably smaller than the likes of Adecco
While that specialization gives the company a reliable identity for clients, it does lead to a different sort of sensitivity. Tasks such as freight handling, construction, and no-skill/low-skill assembly are economically sensitive, and it's extremely easy for a client to cut back immediately on unskilled temporary workers when the business hits a slow patch.
Although the catalyst for the sell-off was a bit goofy, I can understand why some investors would have looked to lock in profits -- the stock has been on quite a tear for the past year. That said, the company does produce respectable cash flow and solid internal rates of return. Perhaps the analyst in question was right that there are other better relative values out there, but it doesn't seem to me as though it would take a lot of heavy lifting to keep this company moving forward.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).