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At one point in time every company had to start off small. Even the largest most innovative and powerful companies began with an idea. The idea then had to be given an opportunity in order to succeed. What I am looking for are small companies that have solid operations that are in the process of growing and may have received the opportunity to expand.

Team Staff (TSTF) – Team Staff is a very small company with a market cap of only $8.6 million. The company provides healthcare support and technical services to federal agencies and the Department of Defense. Since 2006, revenue has decreased year to year and since 2008, profit margins have decreased each year. Team Staff announced revenue of 40.87 million in 2010.

Year to date, Team Staff’s stock is up over 200% and for what I believe to be valid reasons. All growth has occurred since April, which was initiated by insider purchases worth a total value of $225,000. I always view insider purchases as a sign of things to come, especially if the insider purchase is made by management. If I were a CEO, I would not buy into my company just before horrible earning reports or a loss of business.

During the next few months, Team Staff received several contracts/awards with high potential values. The company received a contract extension from the VA for $8,725,000, which is a fixed price contract. They were awarded “BPA” from the VA for an additional mail outpatient pharmacy with a max value of $140,000,000 over five years.

The month of July provided what appears to be the most significant news yet. The company received the prime contract award from the Naval Surface Warfare center, which allows Team Staff to compete for prime task orders under the award contract vehicle. The CEO believes this to be a “significant achievement as they will bid on $5,300,000,000 of services per year.” This award includes a 3 year base period and a 5 year award term that will be determined after periodic performance reviews.

When investing in a company you have to look at the facts, recent developments and use your own judgment to decide if the news is relevant. Looking at the insider purchases, the fixed contract from VA, the mail outpatient pharmacy, Naval Surface award and a guaranteed base salary, which is a portion of the Naval Contract, leads me to believe this company is significantly stronger than it was six months ago. With little guidance from the company on how much revenue each deal will provide quarterly or yearly, investors are left to decide for themselves.

As an investor I will look at each deal with the glass half empty. I will try to underestimate each contract as much as possible to obtain a figure in which I believe revenues will exceed.

  • Fixed contract with VA = $8,275,000 @ 10 years, an overestimated guess as to the length of contract) = $827,500 per year.
  • Pharmacy deal maxes at $140,000,000 over five years. So in order to underestimate and give us a figure we believe the company could outperform -- let us say the deal is $50,000,000 over 5 years (amount of years are known) = $10,000,000.
  • Finally, there is the naval deal, which is $5.3 billion per year. Let’s think low once again and say that Team Staff receives 1% of the total amount per year. So the amount would equal $53,000,000 (probably why the CEO saw it as a significant achievement).
  • We also have to remember the base pay from the naval deal so we will say $100,000 per year just for fun since, we don’t know the actual amount.

These figures equal almost $64,000,000 and I think everyone could agree these numbers are not generous. The numbers have been underestimated to the best of my ability so that the company will outperform my estimations. TSTF stock price is $1.56 and 2010 revenue was $40.87 million, I am projecting $64.00 million for the next 12 months. The last time Team Staff had revenue in the range of $60.00 – $70.00 million was in 2006 and the stock traded in a range from $5-$7. The stock price has increased 200% since April. The question to ask yourself is if the upside is greater than the downside and has the stock's value been met? Based on the figures above, I would conclude that the upside is greater and that the stock's value is nowhere close to being met.

Source: Analyzing the Unknown Future of Small Cap Stocks: Team Staff