BGSF, Inc.: Performing Well In Challenging Job Market (NYSE:BGSF)

BGSF, Inc. (NYSE:BGSF) has struggled over the last couple of years, as challenging conditions in the labor market have kept the stock from breaking out.

After dropping to about $6.00 per share in early 2020 in response to the pandemic lockdowns, its share price has been trading rather flat, moving in a tight range from almost exactly two years ago to today. Other than an occasional off-and-on move above $14.00 per share in the latter part of 2021 and early 2022, the share price has, for the most part, traded in a range of $12.00 per share to $14.00 per share on average.

BGSF has positioned itself well in the labor market by focusing on Professional and Real Estate, as both should continue to be growth segments because of secular trends in IT and underbuilding in the U.S. real estate market.

I don’t expect the company to surprise in any big way going forward, but I do think it has the pieces in place to drive consistent incremental growth while providing a solid dividend yield.

In this article we’ll look at some recent numbers and why the company is positioned to continue to do well over the long term.

Recent numbers

Revenue in the third quarter was $78.5 million, up 22.3 percent year-over-year. Revenues in the first nine months of 2022 were $221.1 million, an increase of 29.1 percent from the same quarter last year.

Revenue in Real Estate grew by 34.1 percent in the quarter while Professional revenue was up 14.9 percent.

Gross profit was $28 million, a gain of 27 percent from the third quarter of 2021. For the first nine months gross profit was $76.5 million, an increase of 33 percent from the third quarter of 2021.

Net income was $4.7 million, or $0.44 per share, up from the $3.7 million, or $0.36 per share last year in the same reporting period. Net income for the first nine months of 2022 was $9.8 million, or $0.93 per share, compared to net income in first nine months of 2021 of $6 million, or $0.59 per share.

Adjusted EBITDA was $8.0 million, accounting for 10.2 percent of revenues, an improvement over the $5.4 million in adjusted EBITDA in the third quarter of 2021, which accounted for 8.4 percent of revenues. Adjusted EBITDA for the first nine months of 2022 was $17.4 million, representing 7.9 percent of revenues, compared to $9.9 million in the first nine months of 2021, which represented 5.8 percent of revenues.

Adjusted EPS was $0.48 in 2022, versus $0.31 in Q3 2021. Adjusted EPS in the first nine months of 2022 was $1.05, compared to $0.55 in the first nine months of 2021.

Although the share price of BGSF has jumped by approximately $3.00 per share from when it dropped to a 52-week low of $10.30 on October 13, 2022, it still has underperformed when considering the boost in the company’s performance over that time, and even more so when looking at a 2-year chart of the company, where it has struggled to break out of its fairly tight trading range.

I think that’s directly related to the job market and how the tug-of-war continues between employer and employee needs and wants.

Real Estate and Professional

Something a lot of investors may not take into consideration when thinking about BGSF is its choice of market segments it’s competing in. With both its Professional and Real Estate segments, the company is positioned to ride long-term secular demand trends that should last for years.

With the rapid change in tech and the accompanying demand, this is not an area that companies have cut back in spending on; they simply can’t afford to fall behind competitors in this vital area of their businesses.

So while that part of the labor market can be tough because of the growing desire by employees to not have to come to the office, at the same time there is work being done to educate both sides by BGSF in order to find a solution that both sides can agree upon.

This will take some time to adjust to and work out, but it doesn’t change the demand side of the equation in relationship to the number of positions that will need to be filled in the years ahead.

The same is true with real estate. As CEO Beth Garvey has mentioned a couple of times, the multifamily industry is underbuilt by an estimate 4.3 million unit by 2035, citing data from the National Apartment Association and National Multifamily Housing Council. The same organizations say at this time there are about 600,000 new apartment homes needed to meet demand.

Taken together, this should be a powerful tailwind for BGSF over the long term.

The point is the company has chosen the right job market segments to deliver long-term growth going forward.

Conclusion

I think the major reason BGSF hasn’t been able to break out in relationship to its share price is the change in the way people want to work, and this has put somewhat of a damper on the job market, even though demand remains high.

Combined with uncertainty surrounding the economy and how that is going to play out in the months ahead, appears to be another headwind the company faces, even though it states demand remains robust.

That said, there’s a big difference between demand and being able to fill that demand. For markets like IT and real estate, there’s no question demand is going to remain strong. The issue is whether or not potential employees are willing to work within the parameters businesses are expecting or requiring them to.

BGSF has been working hard on educating businesses and prospective employees on the issues involved, and if they are able to make significant progress there, it could be a differentiator in a tough labor market that, as of now, favors workers.

Looking ahead, the question for BGSF isn’t demand, but whether or not it’ll continue to be able to fill demand. It has shown itself capable of doing so recently, but I think the road ahead is going to get tougher through most of 2023. If it can maintain its momentum, I think the market will eventually reward its share price.

There could be some hiccups in the first half of 2023, but further out, once there is more clarity concerning the economy and what the Federal Reserve will do in response to inflation, that should be a tailwind once the Fed does in fact makes its real pivot.

Over the long term I like BGSF, and with its solid dividend that I don’t think is in danger of being cut, patient investors can continue to enjoy income while they wait for the share price to reward the performance of the company.