As an emerging company in the staffing industry, Staffing 360 Solutions, Inc. (STAF) acquires and integrates U.S. and U.K. staffing agencies. Investors’ optimism surrounding STAF’s improved anticipated financial results for the about-to-be-reported quarter (ended July 3, 2021) drove the stock to a 32.5% gain over the past month, to close Friday’s trading session at $4.99.
The company expects 20% year-over-year growth in its revenue and gross profit in the second quarter. However, the stock has retreated 15.1% over the past year and 4.8% over the past three months. STAF is currently trading 75.1% below its 52-week high of $20.04, which it hit on October 15, 2020.
The company executed a reverse stock split on July 1, at a ratio of 1 post-split share for every 6 pre-split shares to regain compliance with the NASDAQ Capital Market’s $1.00 per share minimum bid continued listing requirement. While the company expects positive net income for the quarter ending July 3, 2021, it incurred losses until the first quarter.
Here are the factors that we think could influence STAF’s performance in the upcoming months:
Businesses have been reporting a shortage of workers even though many people are still unemployed. Many employers think that generous unemployment benefits, including an extra $300 per week in unemployment cash from the federal government, is contributing to the nationwide worker shortage.
However, according to an Indeed analysis, job searches are muted in the states that cut off unemployment benefits ahead of their official expiration. This is perhaps due to other challenges, such as childcare and health concerns. According to a Forbes report, the labor shortage may be permanent. This could have an impact on STAF’s growth prospects also.
STAF’s revenue declined 17% year-over-year to $48.95 million for the first quarter, ended March 31, 2021. The company’s gross profit for the quarter came in at $8.02 million, which represents a 24.7% year-over-year decrease. Its net loss was $1.69 million in the first quarter versus $7 million in the prior-year quarter. STAF’s adjusted EBITDA decreased 6.5% year-over-year to $1.13 million.
Selling Shares to Fund Growth Activities
On April 23, 2021, STAF closed a private placement of Series F convertible preferred stock and warrants from which it generated $4.7 million in gross proceeds. The company is expected to use the proceeds for working capital purposes and to repay existing debt and/or redeem shares of Series E convertible preferred stock. It also generated $19.7 million in gross proceeds in February 2021 from a public offering of its common stock.
Consensus Price Target Indicates Downside
STAF is currently trading at $4.99, and Wall Street analysts expect the stock to hit $3.75 in the near term, which indicates a potential 24.8% decline.
POWR Ratings Reflect Bleak Prospects
STAF has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. STAF has a C grade for Value, which is in sync with its 29.40x forward EV/EBIT, which is 65.4% higher than the 17.78x industry average. It has a D grade for Stability, which is justified given its beta of 1.72.
The stock has a D grade for Quality also. This is consistent with STAF’s 16.52% trailing-12-month gross profit margin, which is 43% lower than the 28.98% industry average. Its trailing-12-month ROTC and ROTA are negative compared to the respective 5.69% and 4.12% industry averages.
In addition to the POWR Ratings I’ve just highlighted, we’ve also rated STAF for Momentum, Sentiment, and Growth. Get all the STAF ratings here.
STAF is ranked #81 of 85 stocks in the B-rated Industrial – Services industry.
Better than STAF: Click here to access several top-rated stocks in the same industry.
STAF received a major blow to its business last year amid the COVID-19 pandemic; the staffing industry was severely impacted. According to Statista, the U.S. staffing and recruiting market is anticipated to have decreased to $119.4 billion in 2020, which represents a 21% year-over-year decline. While the company expected to report improved financials in the about-to-be reported quarter, analysts expect STAF’s EPS to decline 88.2% year-over-year to $0.22 in its fiscal year 2022. So, it could be wise to avoid the stock now.
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STAF shares were trading at $4.34 per share on Tuesday afternoon, down $0.65 (-13.03%). Year-to-date, STAF has gained 7.62%, versus a 15.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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