Tic-tac-toe, investors want to know: Will professional services firm Resources Global (NASDAQ:RECN) make it three in a row for earnings misses when it reports its fiscal Q4 and full-year 2006 numbers Wednesday afternoon?

What analysts say:

Buy, sell, or waffle? Ten analysts follow Resources Global today, splitting their ratings down the middle. Half say hold, and half say buy.

Revenues. Sales are expected to climb 11% year over year in tomorrow's news, to $166.7 million.

Earnings. Profits, in contrast, are expected to be flat at $0.31 per share.

What management says:
In explaining Resources' earnings miss last quarter, CEO Donald Murray pointed out that two primary forces were at work. First, an "ongoing strong demand for [Resources'] Services," and second, "the effect of our investments needed to build Resources Global Professionals into a true multinational professional services firm."

My translation: "First of all, we beat revenue estimates, so we're still relevant years after Sarbanes-Oxley became the law of the land, despite what our detractors have been saying. And second, sure, we missed profits targets, but only because we're investing for the future."

What management does:
My fellow Fool, Stephen Simpson, pointed out that the company nonetheless saw its margins slip "at both the gross and operating levels" in fiscal Q3, which, combined with the tiny earnings miss, helped to drop Resources' shares 10% in the wake of the March announcement.

Although a blip in margins and a penny's shortfall in profits might seem insufficient to trigger such a sell-off, investors seemed to adopt the view of the battle station officer from Star Wars: "We've analyzed the margin trends, sir, and there is a danger." And indeed, the rolling tallies for gross, operating, and net margins have all been weakening over the past several quarters. But is this, then, the time to "have your ship standing by?"

Margins %

11/04

2/05

5/05

8/05

11/05

2/06

Gross

39.6

39.6

39.6

39.6

39.5

39.3

Op.

16.3

17.2

17.2

17

16.3

15.5

Net

9.8

10.3

10.4

10.4

10.1

9.8
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

The Fool says:
I'd reply in Grand Moff Tarkin's astonished tone, when asked the same question (taking liberties with the text again): "Evacuate? In our moment of triumph? I think you underestimate Resources' chances!"

Looking at the same numbers that you see above -- the same numbers the sellers saw three months ago -- Motley Fool Stock Advisor co-analyst Tom Gardner commented recently that he remains "content with this two-time recommendation." Citing Resources' "diversified base of customers and high renewal rates for its consulting relationships," and echoing Murray's sentiment that Resources has a future beyond Sarbanes-Oxley, Tom opined that SOX "will not be the only regulatory advance that forces companies to more accurately disclose their performance ."

The investments that Resources made last quarter and that it's continuing to make today may depress its margins in the short term. In the long term, however, they should ensure that the company sticks around and continues to make money for its shareholders far into the future.

Still not sure whether you should invest in Resources Global? Get the CEO's own views on its future in our recent interview with Donald Murray .

Competitors:

  • Adecco (NYSE:ADO)
  • Robert Half International (NYSE:RHI)

Customers:

  • ConocoPhillips (NYSE:COP)
  • Cummins (NYSE:CMI)
  • SouthWest (NYSE:LUV)
  • Tyco (NYSE:TYC)

Resources Global is a Motley Fool Stock Advisor pick. Tyco is a Motley Fool Inside Value pick. Take the newsletter of your choice for a 30-day free trial.

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