May 11, 2021
[5 min Read]
GEE Group is a premier staffing and HR service solutions provider in the United States. GEE Group operates through 2 main segments, Industrial Staffing Services, and Professional Staffing Services. GEE Group offers placements for professionals (ie. Finance, engineering, medical professionals etc.) for direct or contractual hiring.
GEE Group offers professional, commercial and contractual staffing solutions under various names such as Paladin Consulting, Accounting now, Ashley Ellis, General Employment, Triad and many more.
GEE ($JOB) has a market cap of $53.934M, a TTM revenue of $126.9M and their FYE 2020 EBITDA was $3.77M.
As previously stated, GEE Group has a TTM revenue of $126.9M, however on this they grossed $44.7M in profit which represents a 35.2% gross margin.
96% of GEE Group's revenue comes from 3 verticals. These verticals consist of Information Technologies (46% of revenue), Finance/Accounting/Office (36% of revenue), and Light Industrial (14% of revenue).
GEE Group's IT vertical brought in $58M in revenue and has a gross margin of 29%. The bill rate for this vertical fall between $40-200/hour. Some of the brands that GEE operates under in this space consist of Agile, Paladin, SNI Technology, Ashley Ellis and Access Data
GEE's Finance, Accounting and Office Vertical brought in $46M in revenue and has a gross profit margin of 41%. This verticals rates range from $25-100/hour. Some of the brands that GEE operates under for this vertical include SNI Certes, SNI Financial, Staffing Now, and Accounting Now.
GEE's Light Industrial Vertical brought in $17M in revenue and has a gross profit margin of 31%. The Light Industrial billing rate ranges from $14 per hour to $15 per hour. GEE operates under TRIAD Staffing for their Light Industrial Operations.
GEE has stated that they want to focus and grow their more profitable verticals. An example of this would be their Engineering vertical. GEE's Engineering vertical accounts for 3% of revenues ($4M), but it has a gross margin of 80%. If GEE can grow this vertical it will be 2-3x more beneficial than focusing on growing their largest verticals.
80% of GEE's revenues came from contract staffing, 11% came from Permanent placement and the rest came from other sources.
COVID has decreased Gee's revenues by 14.44%, however some good came out of this as GEE was able to increase their Gross margins. This increased margin will be very beneficial as GEE and the rest of the staffing market recover quickly post-COVID.
Some companies that operate in the same industry (employment services) and are of similar market cap include ShiftPixy ($PIXY), Mastech Digital ($MHH), HireQuest ($HQI), Hudson Global ($HSON), and Staffing 360 ($STAF).
Investment Valuation and Plan:
There are 3 ways in which I estimated the fair value for GEE Group ($JOB), 2 comparable and a Discounted Cash Flow Model.
Discounted Cash Flow:
The DCF Model that I built out gives an estimated fair value of $0.65/ share, which implies a price increase of over 20%. The information in this DCF model was hard to find and may be inaccurate. As a result of this I decided to do a comparable analysis to see if the estimated price was similar to that of the DCF model that I created.
Comparable Analysis - P/S:
To carry out the P/S comparable analysis between GEE Group ($JOB) and their peers (listed in “competitors” section). This resulted in an estimated share price of $13.77, which implies a 2434.84% share price increase. This value was very high, so I decided to compare the P/E of these companies to gain further insight on the fair price of this stock.
Comparable Analysis - P/E:
As previously stated, I conducted a comparable analysis on GEE Group using P/E values. This analysis concluded that estimated fair value per share is $10.09, this implies an upside of 1757.18%. This helps to prove the accuracy of the previous comparable, and that GEE Group is heavily undervalued.
My plan for investing in $JOB would be to enter at any price below $0.54 in order to limit the downside risk. I plan on holding all of the shares until the share price reaches $5.35 (if it ever reaches this price), and at this price I would plan on selling 10% of the position. By selling 10% of shares, I would be able to recuperate my original investment After this, I would hold my shares until the share price reaches $10.09, and at this point I would liquidate the rest of my position.