This human resources solutions provider beat analysts’ earnings estimates by $0.20 last quarter.
TriNet Group Inc (TNET)
From Validea Hot List Newsletter
Strategy: Small-Cap Growth Investor
Based on: Motley Fool
TriNet Group, Inc. is a provider of human resources (HR) solutions for small to medium-sized businesses (SMBs). The company provides an HR technology platform with online and mobile tools that allow its clients and their worksite employees (WSEs) to store, view and manage their HR-related information and conduct a range of HR-related transactions anytime and anywhere. The company’s clients are distributed across a range of industries, including technology, life sciences, financial services, property management, retail, manufacturing and hospitality.
RELATIVE STRENGTH: PASS: The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. TNET, with a relative strength of 90, satisfies this test.
INSIDER HOLDINGS: PASS: TNET’s insiders should own at least 10% (they own 38.51%) of the company’s outstanding shares which is extremely attractive since the minimum requirement is 10%. A high percentage indicates that the insiders are confident that the company will do well.
CASH FLOW FROM OPERATIONS: PASS: A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. TNET’s free cash flow of $3.01 per share passes this test.
PROFIT MARGIN CONSISTENCY: PASS: TNET’s profit margin has been consistent or even increasing over the past three years (Current year: 5.44%, Last year: 2.01%, Two years ago: 1.19%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise.
ACCOUNT RECEIVABLE TO SALES: PASS: This methodology wants to make sure that a company’s accounts receivable do not get significantly out of line with sales. It’s a warning sign if a company’s accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for TNET was 9.74% last year, while for this year it is 9.68%. Since the AR to sales has been flat, TNET passes this test.
“THE FOOL RATIO” (P/E TO GROWTH): PASS: The “Fool Ratio” is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (TNET’s is 0.17), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. TNET passes this test.
DAILY DOLLAR VOLUME: PASS: TNET passes the Daily Dollar Volume (DDV of $19.5 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. “You’ll be scoring touchdowns against the big guys on your turf.”
John Reese, Validea Hot List Newsletter, www.validea.com, 877-439-0506, July 27, 2018