Mastech Holdings (MHH) released their 10-Q on Aug 14 which I found to be very good..
After reviewing the 10-Q, nothing much has changed in the business. Still chugging along making cash and is in excellent health and very undervalued.
As I mentioned, the state of the company doesn’t differ much from last quarter. MHH was able to make money last quarter and the “-77% drop in revenues” in the news is mere noise and more chance for me to buy as others freak out and sell.
Every company performed terribly against the highs of the first half in 2008 which makes the yoy comparison useless. On the flip side, when the economy gets better and MHH with it, Wall Street will be comparing the company with the worst year which will make any quarterly result look good.
One excellent analysis method I learnt from F Wall Street was that when analyzing the business, it’s important to look at the company over multiple instances rather than with year over year results. This is because all businesses will encounter cycles due to the industry or other macro factors.
Back to MHH.
Using 0% growth, 15% discount rate and without even bothering to adjust for a downturn in the business cycle, MHH still looks to be worth around $9.
Remember that the spin off price was also $9.
I recently made changes to the way I calculate normalized earnings in the Benjamin Graham formula spreadsheet, so it now produces a conservative and more ideal normalized earnings. (Once I have tested it enough, it’ll be included in the next major release I am working on which will include Earnings Power Value EPV)
The worst case scenario where MHH has $0 EPS and 0% growth leads to an ultra conservative value of $1.42.
By adjusting earnings slightly, a realistic number is in the range of $7.
Net Net Working Capital value went from $1.80 to $2.02 this quarter. Something good is going on in the company.
(click to enlarge)
Another similar company getting a fair amount of attention and movement is Volt Information Sciences (VOL). Although there are some differences, you have to take a look at MHH and VOL side by side to see how much better it really is. So if VOL is able to move up so quickly with some attention, I see MHH doing much better if Mr Market can notice what a mistake he is making.
Based on a multiples method of valuation (PE, cash flow, sales, enterprise value and others) MHH fair value is at $7.
Not a huge grand slam but still a potential homerun nonetheless. Just not sure about how quickly it will be realized.
I own shares of MHH at the time of writing