SPAR Group: A Value And A Growth Stock
October 23, 2012 - SPAR Group (SGRP) is a diversified international merchandising and marketing services company that provides a broad array of services for Fortune 500 companies worldwide. SPAR Group's products improve their customers' sales, operating efficiency and profits at retail locations. They have long standing strategic relationships with Fortune 500 companies such as Wal-Mart (WMT), P&G (PG), Staples (SPLS), Sony (SNE), and CVS (CVS), to name a few. Their long tenured management team has continued to capture additional market share inside the multibillion-dollar retail merchandising industry.
The majority of investors purchase stock based on two key principles. Is the company a value stock or a growth stock? SPAR Group presents investors with both opportunities.
Currently SPAR Group has generated $86.6 million in trailing twelve month revenue while boasting an enterprise value of $40 million. This represents an EV/Revenue multiple of under 0.5. At a multiple of 1.0 the fair value of the Enterprise Value of $86.6 million, SPAR Group's stock price would be $4.30. More often than not, these terms are mutually exclusive and independent of one another. However, there are times when the two definitions converge on the same company.
First, let's look at the value proposition. The company possesses strong trailing twelve month financials, including annual revenue of $87 million, gross profit of $22.5 million and earnings per share of $0.11. The company has provided guidance of $90 million for 2012. These metrics coupled with sustained year-over-year growth since 2010 and a NASDAQ listing all suggest that the company's valuation is being underestimated by the market. Additionally, the company has successfully improved its balance sheet by removing all of its debt and approved a stock buyback. SPAR management has also been able to expand its geographic footprint. The company now operates throughout 10 countries containing over 50% of the total world population.
The growth prospective also offers interesting insights on the company. During the second quarter of 2012 SPAR Group announced revenue of $24.3 million, an increase of 53%, gross profit of $6.7 million, an increase of 35%, and net income attributable to SPAR Group, Inc. of $718,000, an increase of 41%. In the first six months of 2012 the Company achieved revenue of $45.4 million, gross profit of $12.5 million and diluted earnings per share of $0.05. These numbers continue to reflect the upward trajectory of the company, and show marked growth when compared to Q2 2011.
This positive trend is expected to continue. In the 2011 fiscal year SPAR Group recorded $73.5 million in annual revenue. Projecting that 2012 would be an even more successful year, management announced revenue guidance of $90 million for the twelve month period ending December 31, 2012. Thus far, after six months of reported financials the company is on target to meet or even exceed this number. They have recorded $45.1 million with seasonality typically improving in the second half of the year. Additionally the company has since announced several new international contracts totaling $10 million in annualized revenue.
There are numerous reasons that investors should be interested in SPAR Group. Whether you are a value investor or a growth investor, this emerging micro-cap stock demands your attention. With new contracts being announced, additional territories being integrated, and key relationships presenting fresh opportunities, now is the time for SPAR Group to "grow" its "valuation" and continue its transformation into a market leader in the retail merchandising industry.
It wouldn't be shocking based on these announcements for the company to beat guidance and achieve closer to $100 million in revenue. On a recent conference call discussing Q2 results management explained they would be completing acquisitions both internationally and domestically again which should further propel financial growth. Q3 should be a strong indication of where the company is headed.
This article was reprinted from www.seekingalpha.com.