Is Now A Good Time To Invest In Staffing Stocks?

The staffing industry has been one of the markets most affected by COVID-19. Companies have laid-off workers while others have completely shut their businesses. This means that fewer employment opportunities are being created while more people file for unemployment claims. 

Analysts are predicting a high single-digit unemployment rate in the US by the end of the year. This will be a significant drop from 13.3% for May. The non-farm payrolls are still coming in millions on a monthly basis, which will help bring down the jobless claims.

As such, the market has taken a hit. Nonetheless, this could yet be the best time to invest in staffing stocks because once the world overcomes the adverse effects of COVID-19, an increase in employment opportunities will boost the industry overall.

In order to cope with the coronavirus pandemic, workforce and talent management companies have adapted to new technologies to facilitate recruitment processes. Digital communication applications like Microsoft Corporation’s (MSFT) Skype, Alphabet Inc’s (GOOG) Hangouts, and market-disrupting Zoom by Zoom VIdeo Communications (ZM) have proven their worth.

Online recruitment platforms have also experienced a smoother period since they found it easier to adapt to countrywide lockdowns across the globe. Other businesses have opted to outsource managed workforce resources in a bid to cut costs. But despite all these drawbacks, there are some staffing stocks out there that provide compelling opportunities for those looking to invest in aggressive growth stocks. Here are a few to check out in the coming days.

Insperity Inc. (NSP) is the most promising in terms of growth prospects. This company currently trades a trailing 12-month P/E ratio of 18.36. This valuation improves slightly when projected 12-month earnings are factored in, valuing the stock at 17.45 times. However, when we look further forward, the PEG ratio (5-years expected), which factors the expected earnings growth for the next five years, values the stock at an incredible 1.16 times.

Insperity’s forward dividend yield of 2.54% at a payout ratio of just 37% also offers potential investors and current shareholders something to marvel in the coming quarters. The company’s stock plunged 72% between Jan. 17 and March 18 amid the coronavirus pandemic. 

However, it has maintained a steady recovery since bottoming at $26 per share, to trade at about $61.45, which reflects a 135% gain over the last three months. This could continue through the second half of the year as it remains significantly below the current 52-week high of $144.92. 

Alternatively, investors can also go for stocks that appear incredibly undervalued compared to industry peers. In this respect, Kforce Inc. (KFRC) trades at a trailing 12-month P/E ratio of 5.66. Another US-based staffing company Robert Half International (RHI) is valued at 13.28 times its trailing 12-month P/E ratio. However, these companies’ forward P/E’s are relatively higher than Insperity’s. They also don’t have earnings growth projections for the next five years, which makes it challenging to predict their long-term valuation multiples.

Conclusion

In summary, the staffing industry is one of the most highly affected markets amid the coronavirus pandemic. The massive loss of jobs during February and March affected revenue flows. However, top lines have started to bounce back in the last couple of months as more people resume work and more businesses open their doors again.

There is the risk of a second wave of COVID-19, which could see countries return to lockdowns. But we are edging closer to a vaccine, which will eventually help the world overcome the wrath of the deadly virus. The staffing industry looks to be in good shape for those looking to buy on the cheap.