Should Investors Buy Shares of Three Employment Services?

Amid rising inflation and a tight labor market, employers are struggling to cope with how much to raise employee salaries in 2022. Companies are making record profits and workers are being pressured to keep up with rising costs for essentials including food, gas, health care, transportation and housing. Compensation surveys for employers show that wage increases for 2022 will increase more than the low range of 3% seen in recent years, but not as much as the current level of headline inflation in the US economy, which reached 6.8% in late 2021. However, Gad said Levanon, the Conference Board’s chief economist, said for the first time in several decades, “Inflation is an important factor in deciding annual increases.” Among the companies that say they plan to increase pay budgets in one survey, the average increase is currently 5.2% for half of the companies, with 25% saying they plan to award pay increases of more than 6%.

In a tight and tense labor market, workers are joining unions to an extent not seen in recent decades and millions of workers are giving up their jobs: 4.2 million workers quit their jobs in October, a number down slightly from the previous month but leaving the total. The number of vacancies in 11 million. Smoking cessation rates remain at a 20-year high, and employee expectations are at an all-time high.

One bright spot in Employment Services stocks is that many companies are turning to technology for simulation training rather than traditional video call training, which can be costly. In the past, repeating classroom learning over a video call provided the necessary information but not the experience to enable staff to apply skills to real-life scenarios as simulations would.

Overall, the primary concerns in 2022 are a potential wage vortex – with rising labor market costs fueled by rising inflation across the board – and weak numbers from the December 2021 jobs report causing the Fed to want to slow the economy. However, the implementation of new technology to take advantage of new market segments may be beneficial to the stock of the three employment services. Additionally, as the coronavirus pandemic recedes, these companies and their technologies should become even more important to businesses across the United States.

Employment Services Inventory rated AAII’s A+

When analyzing a company, it is useful to have an objective framework that allows you to compare companies in the same way. That’s one reason AAII created A+ Stock Score, which rates companies across five proven factors that determine stocks that outperform the market in the long run: value, growth, momentum, earnings estimation reviews (and surprises), and quality.

Using the A+ stock scores of AAII, the following table summarizes the attractiveness of three employment services stocks — Korn Ferry, Insperity, and Robert Half — based on their fundamentals.

Summary of A+ AAII grade for three employment services stocks

What A+ Stock Grades Reveal

Corn Ferry

KFY
is a US-based organizational consultancy and management recruitment firm helping clients fill mid-to-high-level management positions. A significant portion of its revenue comes from providing advisory services related to organizational structure. Its segments include Executive Research, Hay Group and Futurestep. The Executive Research division provides executive-level talent provision, as well as research-based interviews and preparation solutions to clients predominantly in the consumer, financial, industrial, life sciences/healthcare, and technology sectors. The Hay Group segment assists clients with the ongoing assessment, compensation, and development of senior executives and management teams. The Futurestep division provides solutions and services for talent acquisition, such as project recruitment and individual career research. The company operates in North America, Asia Pacific, Latin America and other regions.

Korn Ferry has a value score of B, based on a value score of 34, which is in the value range. The rating of a company’s value score is based on several traditional rating scales. KFY has a score of 36 for the price-to-sales ratio, 34 for shareholder return and 42 for the price-earnings ratio (remember, the lower the score the better for value). Successful stock investing involves buying low and selling high, so stock valuation is an important consideration for stock selection.

The value score is the percentile rank average of the above valuation metrics along with enterprise value to Ebitda, price free cash flow, and price-to-book ratios. Korn Ferry has average growth and momentum scores of B and has a current dividend yield of 0.7%.

drowsiness

NSP
Primarily provides a wide range of human resources and business solutions that help companies improve their performance. Small and medium businesses are the primary target customers of the company. Most of Insperity’s products are delivered through the company’s workforce optimization and workforce synchronization solutions, which include various HR functions, such as payroll and recruitment management, employee benefits and compensation, government compliance, performance management, training and development services and human capital management. The company generates all of its revenue in the United States

Quality stock has attributes associated with upside potential and reduced downside risk. The quality score backtest shows that, on average, stocks with higher scores outperformed stocks with lower scores over the period from 1998 to 2019.

Insperity has a quality score of B of 67. The quality score of A+ is the percentile rank average of Return on Assets (ROA), Return on Capital Invested (ROIC), Total Gain on Assets, Repurchase Return, and Change in Total Liabilities for Assets , receivables on assets, Z bankruptcy risk (Z), and F-score. The score is variable, which means it can take into account all eight metrics, or the remaining metrics that are valid if none of the eight metrics are valid. However, for a quality score to be assigned, stocks must have a valid (non-blank) scale and a matching ranking of at least four of the eight quality scales.

The company ranks strong in terms of return on assets and total income of assets, and ranks 86th and 85th percent of all US listed stocks, respectively. However, it ranks poorly in terms of the change in total liabilities to assets, which is in the 31st percentile.

Earnings estimate reviews provide an indication of how analysts view the company’s short-term prospects. The company has grade B earnings estimates, which are considered positive. The score is based on the statistical significance of the last two quarterly earnings surprises and the percentage change in the consensus estimate for the current fiscal year over the past month and three months.

Insperity reported a fourth-quarter surprise positive profit of 4.0% and in the previous quarter it posted a surprise positive profit of 37.0%. Over the past month, the full-year 2021 earnings estimate has increased to $4,368 per share based on three upward revisions and two downward revisions.

Insperity has a Momentum Score of B based on its Momentum Score of 62, and a Strong Growth Score of B. The company has a current dividend yield of 1.6%.

Robert Half International

RHI
Provides advisory services to specialist and risk personnel. The company provides these services through its divisions, including Robert Half Finance & Accounting, OfficeTeam, Robert Half Technology, Robert Half Management Resources, Robert Half Legal, Creative Group, and Protiviti. The company’s segments include temporary staffing, advisory, permanent staffing, risk advisory and internal audit services. The Temporary and Consulting Staffing segment provides specialized personnel in the fields of accounting and finance, administration and office, information technology, law, advertising, marketing and web design. The Permanent Recruitment division provides full-time employees in the fields of Accounting, Finance, Administration, Office and Information Technology. The Risk Advisory and Internal Audit Services segment provides business and technology risk advice and internal audit services. The company generates annual revenue of more than $5 billion and earnings before interest and taxes (Ebit) of more than $400 million. Robert Half also has approximately 19,000 employees.

Robert Half has a growth score of A+ from B. The degree of growth takes into account the historical near and long-term growth in revenue, earnings per share and operating cash flow. The company reported third-quarter 2021 revenue of $1.7 billion, up nearly 44% from $1.2 billion in the last year’s quarter. The company reported quarterly diluted earnings per share of $1.53, up 129% from $0.668 per share year-over-year. The company reported non-GAAP operating income of $228 million, an increase of 123% over the same quarter last year.

Robert Half has a Momentum score of A, based on his Momentum score of 85. This means that he ranks first in 15% of all stocks in terms of their relative strength weighted over the past four quarters. The company has an average value grade of C and a quality grade of A, based on their respective scores of 58 and 92. Robert Half has a current dividend yield of 1.4%.

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Stocks that meet the approach criteria do not represent a ‘recommended’ or ‘buy’ listing. It is important to perform due diligence.

If you want an edge during these market fluctuations, Becoming a member of AAII.

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