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Edward Abraham
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I have been a small cap investor for the past 15 years managing personal money and family money. Prior to managing capital I held several executive positions at multiple Fortune 500 companies.
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  • SPAR Group A Value And A Growth Stock

    The majority of investors purchase stock based on two key principles. Is the company a "Value Stock" or a "Growth Stock"? Currently the company possesses $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, which would represent a stock price of $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.

    One such example is SPAR Group, Inc. (NASDAQ: SGRP), a diversified international merchandising and marketing services Company that provides a broad array of services to Fortune 500 companies worldwide. SPAR's products improve their sales, operating efficiency and profits at retail locations. They have long standing strategic relationships with Fortune 500 companies such as Wal-Mart, P&G, Staples, Sony, and CVS to name a few. Their long tenured management team has continued to capture additional market share inside the multi- billion retail merchandising industry.

    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 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 microcap 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.

    Disclosure: I am long SGRP.

    Tags: SGRP
    Oct 17 11:28 AM | Link | Comment!
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