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Corporate Resource Services Seeks Growth In Europe

|Includes: Corporate Resource Services, Inc. (CRRS)

Diversified technology and staffing company Corporate Resource Services, Inc. (NASDAQ: CRRS) announced a couple of weeks ago that it has clinched a deal to acquire Flex Recruitment Plus Ltd, a UK-based firm providing various ranges of employment services to small, medium, and large businesses across the country.

According to CRRS Chief Operating Officer Mark Levine, the acquisition provides a platform for CRRS in Europe and the company plans to work together with the Flex management team to grow the European business organically or through acquisitions. In fact, several staffing companies in the region that are strong acquisition candidates have already contacted CRRS.

Mr. Levine further added that the company is in discussions with additional UK specialty staffing companies which will be a good part of the group. The outlook is also in line with the UK recruitment industry prospects. Based on the forecasts of the Recruitment and Employment Confederation, it sees that the recruitment industry growing by 7.3 percent in 2013, 8.3 percent in 2014, and 9.6 percent in 2015. In addition to that, it believes that recruitment firms in the region will post significant profits in the future on account of good revenue prospects and better margins from operating efficiencies.

Strategic Initiatives

The company has also disclosed that it is expanding its cloud-based services after enhancements of its data center. Management is confident that it has the right competency to provide continuous access to cloud-based applications in the Internet.

Recent third quarter financial results confirm the effectiveness of Corporate Resource Services' strategic plans. It announced revenues of $209 million in the third quarter, an increase of 16 percent compared to the same period last year. Gross margins increased by 40 basis points in line with the overall drop of its operating expenses. As a result, net profit came in at record level amounting to $4.4 million. This marks the fifth consecutive quarter that the company has recorded profitability.

Moving forward, management expects that profitability to improve over the coming reporting periods. It plans to generate strong top-line growth and focus on controlling its overhead costs. Moreover, management said that it is committed to generating higher margins across its product portfolio.

Valuations

The stock trades at 74 times earnings and 16 times book value. The reason for these rich valuations is due to the fact that current earnings are substantially low. However, the company is forecast to grow its profitability substantially over time. In contrast, Mastech Holdings, Inc. (NYSEMKT: MHH) is valued at 22 times earnings and 7 times book value. Another recruitment firm, Robert Half International Inc. (NYSE: RHI) trades at 22 times earnings and 6 times book value.

At the current price levels, the stock is trading at more than 50 percent off its 52-week high. Over time, the market will pay up for an emerging growth company in the recruitment sector.