Comments on: Stock Research and Analysis: Mastech Holdings (MHH) Part 2

By: Value Stock MHH Analysis Update

Value Stock MHH Analysis Update — Mon, 02 Nov 2009 03:40:57 +0000

[...] forget to subscribe to the RSS feed and check out the stock valuation spreadsheets.On October 28, MHH was subject to a 20% drop during the day after earnings was released. Table of Contents:Q3 [...]

By: Investing Reads - Aug 14, 2009 | Old School Value

Investing Reads - Aug 14, 2009 | Old School Value — Fri, 14 Aug 2009 16:19:27 +0000

[...] Mastech Holdings (MHH) has reported their quarterly results so I’ll start working on what is new with the company once the quarterly reports are available. [...]

By: Money Hacks Carnival- By the Book Edition

Money Hacks Carnival- By the Book Edition — Wed, 12 Aug 2009 11:09:56 +0000

[...] Jun presents Stock Analysis and valuation of a Cheap Stock posted at Old School Value, saying, “Discussions on the business of a company called Mastech [...]

By: Portfolio Update July 2009 | Old School Value

Portfolio Update July 2009 | Old School Value — Sun, 02 Aug 2009 00:33:44 +0000

[...] Bought more Mastech (MHH) @ [...]

By: Jae Jun

Jae Jun — Fri, 19 Jun 2009 23:09:30 +0000

People were discussing my post on MHH and I decided to post an answer and wanted to post what I wrote here.
The thread to the discussion is at http://forumserver.twoplustwo.com/30/business-finance-investing/thoughts-stock-513514/
————————————
This is Jae from Old School Value.

Interesting discussion so I thought I would include my opinions.

From the thread it seems like there are 2 sides.
1. MHH is cheap compared to its intrinsic value and
2. MHH is in a lousy industry which I dont want to be involved in.

Two completely separate ideas so obviously no one is getting the answer they want.

I dont invest in the auto industry because it just plain sucks. Ford (F) was incredibly cheap in the midst of the auto meltdown and had I not been so biased I would not have missed out on the 300% rally.

So what I focus on in finding value everywhere. It’s not the super great businesses like KO, JNJ, PG or even AAPL that offer great returns. Everyone is looking for the high ROE, ROA, ROIC companies and probably hold it already. That’s why the price doesn’t veer away from its intrinsic value.

It’s actually the companies with thin margins and thin ratios that explode if you have the stomach to hold on until things get better.

Why?

Thin margins mean that a tiny improvement is seen as having a huge effect.

With the massive bear market already well underway with everything thrown out the window, I see most of the bad things have been exposed already and everything has been dealt with accordingly.

This brings me to MHH. Current unemployment is 10%. What would be worse for the business and stock of MHH?
Unemployment rises to 12% or falls to 9.7%?
If unemployment rates rise to higher levels, people already know its bad. MHH won’t take a huge hit.

On the other hand, if news breaks out that the economic outlook is looking good. An unemployment rate of 9.7% is still ONLY 0.3% lower than 10% yet it will be perceived as HUGE news to the eyes of institutions and folks with money on the side.

MHH has no long term debt, no off sheet liabilities, no red flags in their numbers. The industry is bad and if you are a macro investor, you would stay away, but for those that focus on businesses, and especially on good businesses that can survive the downturn easily, this is a no brainer.

If you also compare MHH to its competitors, it has better numbers in all aspects.

I detailed all the 10K risks already so it isn’t anything new or something I am not aware of.

In the end however, it is your money. Stick to your discipline and what you are good at and we all end up happy. Not trying to convince anyone. There just seemed to be some misunderstandings between the people here so just adding some input.

(think I’ll copy this and add it to my blogs comments section)

Cheers,
[url]http://www.oldschoolvalue.com[/url]

By: Jae Jun

Jae Jun — Fri, 19 Jun 2009 08:35:01 +0000

MHH is a spinoff but they have been in operation since 1986. Although I don’t have the data for the past 20 years, I’ve checked the spinoff proposal documents which include financial statements for the past 3-4 years and the company has been consistent. Since many people won’t know this, it just adds to the opportunity.

I mentioned in the first post that there is no market leader. As you mentioned, the industry is highly fragmented.
I too find it interesting how MMH’s profit margins are the highest which means that they do have a competitive advantage. I just can’t pinpoint why. Is it because they have a 50-50 pool of H1-B and citizen contractors? I’m not fully sure but it’s something I’ll have to keep searching for.

As for eroding over time, their profit margins have been good for quite a while. It could erode but it could easily increase in the industry they are in.

By: Sivaram Velauthapillai

Sivaram Velauthapillai — Fri, 19 Jun 2009 01:48:44 +0000

Tough to say much given how it doesn’t seem to have much financial data for past years. But then again, this is what creates opportunities for small investors… Some questions:

Which is the market leader? Or is this industry very niche and/or fragmented?

If MHH has no moat and is not supposed to be the leader (I don’t know I’m asking) then why does it have the highest profit margin? (If it doesn’t have any major advantages over others yet has a higher margin, it is possible that the margin will erode over time.)

Sivaram Velauthapillai’s last blog post..Will be tough year for bulls & bears