Remote Technology Staffing And Analytics For Business: Mastech Digital

Feb. 24, 2022 1:16 AM ETMastech Digital, Inc. (MHH)2 Likes
Paul Franke profile picture
Paul Franke
16.45K Followers

Summary

  • Mastech supports businesses and organizations of all sizes with remote IT staffing and consulting.
  • This area of labor supply is in high demand and is projected to grow nicely after the pandemic ends.
  • The equity quote has been digesting its large 2020 COVID-19 runup and looks ready to push higher again in 2022.
  • Super-strong volume buying in shares since January is noteworthy.

Businesswoman having distant negotiations using video conference application on pc

fizkes/iStock via Getty Images

Mastech Digital (NYSE:MHH) is an international provider of Information Technology [IT] staffing and digital transformation services focused on solving the digital/online challenges of businesses of all shapes and sizes. Its IT staffing solutions encompass both digital and legacy technologies while its digital transformation services include Salesforce.com, SAP HANA and digital learning services. The company is headquartered in Pittsburgh, with offices in the U.S. and India.

In many respects, it’s an outsourcing and consulting service for companies needing inexpensive help analyzing customers and online footprints, reviewing inhouse technology usage, and offering scalable spot support for all types of IT-related questions and issues. The company works with clients to achieve higher technology returns, minimize costs, and drastically improve success rates through the application of data and analytics expertise across the areas of data management, engineering, and science.

https://www.mastechdigital.com/

Mastech Digital Website

https://www.mastechdigital.com/

Mastech Digital Website

https://www.mastechdigital.com/

Mastech Digital Website

https://www.mastechdigital.com/

Mastech Digital Website

https://mastechdigital.gcs-web.com/static-files/87e09e67-2f6b-4cbf-bafc-232742e47962

September 2021 Presentation

https://mastechdigital.gcs-web.com/static-files/87e09e67-2f6b-4cbf-bafc-232742e47962

September 2021 Presentation

https://mastechdigital.gcs-web.com/static-files/87e09e67-2f6b-4cbf-bafc-232742e47962

September 2021 Presentation

Valuation Considerations

Mastech is actually one of the less expensive investment choices in the IT staffing and consulting industries. On the chart drawn below of forward 1-year estimated P/Es, MHH is near the bottom of the group of peers and competitors.

YCharts by SA

YCharts

On price to forward sales, Mastech is in the middle of the pack with its hybrid business model of doing both consulting and remote staffing for other businesses.

YCharts by SA

YCharts

The calculation of enterprise value to earnings before interest, taxes, depreciation and amortization is well below the S&P 500 average ratio around 17x today. It’s 11.5x EV to trailing EBITDA multiple is well worth ownership, if sales and earnings continue to grow in 2022-23.

YCharts by SA

YCharts

And, income growth is on the high end of the spectrum vs. peers, reviewing 2022-23 analyst forecasts. For those in the Growth At a Reasonable Price [GARP] crowd, MHH is definitely worthy of your research time.

YCharts by SA

YCharts

The company’s return on assets number runs high, a big plus in my book, as limited upfront capital is required for many of their remote IT assignments. The total liabilities vs. assets ratio is a low and conservative number vs. the industry. And, I personally believe improving margins overall will be a storyline in the future, as the business gets better economies of scale. I expect returns and margins on most metrics/comparisons will show an uptick into 2023-24.

YCharts by SA

YCharts

YCharts by SA

YCharts

YCharts by SA

YCharts

Strong Technical Chart Pattern

The main reason I am drawn to Mastech is its 3-month momentum trading chart has been quite bullish. Volume buying and a clear price outperformance trend vs. both peers and the S&P 500 has caught my attention. Its low valuation and steady growth profile are likely the positive developments creating buying interest.

On the 3-year graph below of total returns for shareholders, MHH has been the leading gainer vs. the peer/competitor group of staffing companies and consultants.

YCharts by SA

YCharts

Below is 2-year chart of the super-strong uptrend in MHH. The near triple in its quote between March and June 2020 has everything to do with its unique remote IT staffing business during the stay-at-home pandemic shutdown for businesses. While price is down about 40% from 2020’s peak, underlying business sales and profitability trends continue to improve. My read of the longer-term chart is the company is experiencing robust demand and growth, which may continue regardless of COVID-19 waves (or lack of them) in the future.

StockCharts.com

StockCharts.com

On a 6-month chart of the same momentum indicators, we can see a real turnaround story appearing in the Accumulation/Distribution Line, Negative Volume Index and On Balance Volume readings concurrently. It is very difficult to find a similarly bullish pattern on any individual equity chart the last past three months of generally declining prices on Wall Street. What I gleam from MHH’s technical trend is a real level of buying enthusiasm that I want to be a part of. It looks like medium-term share supply/demand imbalances now argue in favor of ownership. I particularly like the ADL and OBV indicators rocketing higher from the middle of January. A lack of overhead share supply could be the reason.

StockCharts.com

StockCharts.com

Final Thoughts

Reviewing the above fundamental ratio analysis of Mastech Digital’s valuation, and assuming current analyst expectations for sales and EPS are hit in 2022-23, I come up with “fair value” MHH price targets of $25 by summertime and $30 potentially in 12 months. Further assumptions call for CPI inflation to average 5% or less in calendar 2022, and the Treasury debt yield curve to only rise 1% to 2% during the next 6-12 months.

Seeking Alpha Table

Seeking Alpha Analyst Estimates - February 21, 2022

Of course, I am modeling the Russia/Ukraine geopolitical mess and/or an overly aggressive Federal Reserve tightening cycle do not push the U.S. economy into recession this year. On top of these macro risks, a stock market crash or a worsening bear phase on Wall Street could keep the stock quote under pressure in the $15-18 range into summertime.

I own a small Mastech position in my diversified and hedged long/short portfolio design. I may try to purchase a larger stake in the coming weeks. Placing a 20% stop-loss sell order around $15.25 may also be a wise risk-control idea for investors not utilizing high cash levels today or short sale hedges in portfolio construction.

Thanks for reading. Please consider this article a first step in your due diligence process. Consulting with a registered and experienced investment advisor is recommended before making any trade.

This article was written by

Paul Franke profile picture
16.45K Followers
Nationally ranked stock picker for 30 years. Victory Formation and Bottom Fishing Club quant-sort pioneer.....Paul Franke is a private investor and speculator with 35 years of trading experience. Mr. Franke was Editor and Publisher of the Maverick Investor® newsletter during the 1990s, widely quoted by CNBC®, Barron’s®, the Washington Post® and Investor’s Business Daily®. Paul was consistently ranked among top investment advisors nationally for stock market and commodity macro views by Timer Digest® during the 1990s. Mr. Franke was ranked #1 in the Motley Fool® CAPS stock picking contest during parts of 2008 and 2009, out of 60,000+ portfolios. Mr. Franke was Director of Research at Quantemonics Investing® from 2010-13, running several model portfolios on the Covestor.com mirror platform (including the least volatile, lowest beta, fully-invested equity portfolio on the site). As of August 2022, he was ranked in the Top 5% of bloggers by TipRanks® for stock picking performance on positions held one year. A contrarian stock picking style, along with daily algorithm analysis of fundamental and technical data have been developed into a system for finding stocks, named the “Victory Formation.” Supply/demand imbalances signaled by specific stock price and volume movements are a critical part of this formula for success. Mr. Franke suggests investors use 10% or 20% stop-loss levels on individual choices and a diversified approach of owning at least 50 well-positioned favorites to achieve regular stock market outperformance. The short sale of securities in overvalued, weak momentum stocks as pair trades and hedges is also a part of the Victory Formation long/short portfolio design. "Bottom Fishing Club" articles focus on deep-value candidates or stocks experiencing a major reversal in technical momentum to the upside.
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Disclosure: I/we have a beneficial long position in the shares of MHH either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This writing is for educational and informational purposes only. All opinions expressed herein are not investment recommendations, and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisor capacity and is not a registered investment advisor. The author recommends investors consult a qualified investment advisor before making any trade. Any projections, market outlooks or estimates herein are forward looking statements and are based upon certain assumptions and should not be construed to be indicative of actual events that will occur. This article is not an investment research report, but an opinion written at a point in time. The author's opinions expressed herein address only a small cross-section of data related to an investment in securities mentioned. Any analysis presented is based on incomplete information, and is limited in scope and accuracy. The information and data in this article are obtained from sources believed to be reliable, but their accuracy and completeness are not guaranteed. The author expressly disclaims all liability for errors and omissions in the service and for the use or interpretation by others of information contained herein. Any and all opinions, estimates, and conclusions are based on the author's best judgment at the time of publication, and are subject to change without notice. The author undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional materials. Past performance is no guarantee of future returns.

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