Value Stock Mastech Holdings Misunderstood


On October 28, MHH was subject to a 20% drop during the day after earnings was released.

Looking at the results of the Q3 financial reports, I see a company that is continuallying improving its business and strengthening itself. But Wall Street thinks otherwise by punishing the company down 20%.

Revenues for the quarter were $17.2 million, compared to $24.1 million reported in the corresponding quarter last year.

With Wall Street being focused only on the short term, the market presents a great opportunity for value investors able to weather volatility to purchase a great cheap stock.

Q3 Financial Results Summary

MHH is a very easy business to understand and so are the financial statements.

Taking a look at the numbers:

  • an increase in cash and equivalents to$ 7.9m from $4.3m the year ago and $6.9m from the previous quarter.
  • increase in deferred taxes from $306m to $386m
  • accounts receivables remained the same at $7.7m. Sales has gone down while accounts receivables has stayed the same. This will be a red flag if the ratio gets out of hand but at the moment, I’ll have to continue to wait and see until the economy gets better and things turn back to normal.
  • accounts payables and other liabilities are steady. An indication that the business is not capital intensive and capital is well managed.
  • COGS is steady at 81.5%
  • the “all important” EPS was $0.12 compared to $0.32 the year ago. 62.5% lower than the previous year, so it may have been less than what the market expected but still continuing its top line positive results even after becoming independent and not being shielded with tax benefits as it did while it was a subsidary of iGate.
  • balance sheet has been strengthened despite difficult conditions.

The one thing that I would like to point out is that the financial numbers for MHH is very transparent. Quality of earnings and assets are of high quality.

No income from investments, tax benefits or other sources.

The Value of the Business

Comparing the value of the business or intrinsic value to the stock price presented another opportunity to buy some more shares.

MHH has now become the 2nd biggest position in my portfolio and although not as cheap as it was a few months back, I still view it as an excellent low risk company to own.

Give MHH some time to bounce back with the economy and I’m confident of seeing promising results.

Disclosure

I own shares of MHH at the time of writing.

  • Brian Clark

    Yeah, I’m in at @4/share from a while back, and thinking about picking up some more as well. Good to see you feel the same, down 20% was underserved.

  • Having conviction only adds to the excitement when you see a great business being oversold. Couldn’t resist and bought more at $4.60. I still see 100% upside from here so time to study other businesses while waiting for MHH to recover.

Ready to try Old School Value?

TEST DRIVE THE DEMO TODAY
[checklist-collection]
[checklist-collection]