Staffline Group (LSE:STAF) is a penny stock on the move. It jumped 9% on Tuesday 20 January, taking the one-year return to just above 100%!
Despite this, the Staffline share price remains 95% below where it was at the start of 2019!
So, might this penny stock be worth considering, just in case it ever gets anywhere near its previous highs? Let’s take a closer look.
A strong year
Staffline is the UK’s largest recruitment partner, providing 40,000 flexible blue-collar workers per day on average for the likes of Argos and BMW.
The stock jumped this week because the company provided a strong full-year trading update. In this, it said results were “expected to be significantly ahead of market expectations“. That’s never a bad thing to say in an update!
Revenue is anticipated to have risen 11.5% to £1.1bn, largely driven by “a significant new strategic partnership with a leading logistics provider and continued market share growth in the blue-collar sector“.
This partnership helped drive temporary worker hours to a five-year high during the critical Q4/Christmas peak season.
The other end of the income statement was even better, with operating profit up 28.3% to £12.7m, and pre-tax profit surging 42% to £7.1m. Both figures were well ahead of market expectations.
Furthermore, net debt was reduced to £1.9m from £4.1m. For context, net debt was £68m back in 2019. So the company’s balance sheet is much stronger today.
Staffline’s scale and reach, combined with its financial strength and high governance standards, ideally positions the business in a market where competition remains fragmented and customers, both new and existing, continue to consolidate their labour suppliers.
Staffline
A very cheap penny stock
The reason the stock trades for pennies today — down from £13 in 2015 — is because Staffline has previously been embroiled in scandals. It was found to have underpaid workers the minimum wage, which led to a fine, significant losses, and complete breakdown of investor trust.
However, the recruitment specialist has worked hard to rebuild itself in recent years. And despite this slowly being reflected in the share price, the valuation remains dirt-cheap.
The forward price-to-earnings (P/E) multiple is a lowly 8.5. Meanwhile, the P/E-to-growth (PEG) ratio here is just 0.3, which is well below the widely used fair value benchmark of one.
There’s also a £7.5m share buyback programme that’s almost completed. This has helped reduce the share count, which ballooned during the pandemic.
Worth a look?
Of course, Staffline operates in a very fragile UK economy, with rising unemployment. So any sudden downturn wouldn’t help the business (or share price).
Moreover, this is an industry where profit margins tend to be wafer-thin, as we can see by the £12.7m in operating profit on £1.1bn of revenue. There’s also no dividend today.
On balance though, I would say this is one of the more interesting penny stock opportunities out there. Staffline is an industry leader, with improving fundamentals and very established relationships with a handful of large companies.
Only one broker follows the stock, according to my data provider. But they have a 60p price target, which is 23% above the current price of 48.6p (on 21 January).
For investors searching for a cheap penny stock with strong turnaround potential, I think Staffline deserves closer attention.
