International staffing company Sthree (LSE: STEM) released its full-year results report today and the small-cap stock is more than 10% higher as I write. Should I grab some of the shares now for my own portfolio?
Barnstorming results
And to answer my own question, buying the stock now looks like a good idea for me. After all, as we might expect today’s figures are good. For the 12 months to 30 November, revenue at constant currency rates increased by 14% compared to the year before. And of that, fee income rose by 19%.
That turnover caused earnings per share to shoot up by 143%. And the company managed to increase its net cash position by 15% to £57.5m. The outcome clearly pleased the directors and they rewarded shareholders with a 120% lift in the total dividend for the year.
I reckon much of the good performance comes down to the success of the company’s strategy. Sthree describes itself as “the only global pureplay specialist staffing business focused on roles in Science, Technology, Engineering and Mathematics (STEM)”.
Interim chief executive Timo Lehne said in today’s commentary, the “record-breaking” results demonstrate the company has a “robust” strategy focusing on STEM and flexible working. He said the market rebounded in 2021 after the challenges caused by Covid-19, and demand for STEM rose.
Sthree capitalises on demand for STEM skills by placing engineers, developers, scientists and other professional people into industry where they’re needed. And Lehne reckons there’s been “particular” client demand for the company’s employed contractor model. And Sthree leads that market segment in many countries. The category accounted for around 32% of overall net fees.
A robust outlook
Looking ahead, Lehne sees strong momentum in the business driven by robust demand for the talent the company provides. And he expects “double-digit” growth in 2022. Meanwhile, the valuation looks undemanding, despite the buoyancy of the stock today.
With the share price near 465p, the earnings multiple based on today’s results works out at just below 15 and the dividend yield is around 2.4%. However, if the business achieves the growth in earnings it hopes in 2022, the forward-looking valuation numbers could reduce. But such positive expectations becoming a reality is never certain and it’s possible for operational challenges to arise that could derail the forecasts.
And another factor I’m wary about is the high degree of cyclicality in the firm’s business model. If demand cycles down, it’s likely that so will profits, dividends and the share price.
Nevertheless, I’m bullish about the prospects for world economies and the labour market for all timeframes right now. And the strength of Sthree’s balance sheet also encourages me. So I’m tempted to buy some of the shares now to hold with a timeframe of at least five years in mind.
