Temporary Employment Trends Favor On Assignment, Inc. (ASGN)

Margins

Temp agencies often have relatively low margins, although a popular niche can help a firm achieve better results. On Assignment’s scientific staffing services produced a 3.9% profit margin that beat some other temp firms, although Robert Half achieved a 5.1% profit margin itself. Kelly Services, Inc. (NASDAQ:KELYA) reported a 1.2% profit margin, and Manpower reported a 1% profit margin. Manpower did implement cost cutting initiatives recently because of weak demand for temporary workers in European nations, reported Bijay Anandoth Koyitty at Reuters. On Assignment may have decided to focus on growth instead of maximizing profits, though.

Valuation

On Assignment stock does sell for a premium right now. On Assignment had a fairly pricy forward P/E of 20 and a PEG of 1.17 on January 31, 2012. Kelly Services had a significantly cheaper forward P/E of 10 and a PEG of 0.74 on the same date, although Kelly did just miss on earnings. The Fool’s Travis Hoium explained that Kelly earned 33 cents per share while analysts expected 34 cents, which resulted in a 12% share price drop. Investors might have overestimated Kelly’s prospects because of Robert Half and Manpower’s results.

Robert Half and Manpower look cheaper than On Assignment under one metric, but more expensive under another metric. Robert Half had a forward P/E of 17 and a PEG of 1.22 on January 31, 2012, while Manpower had a forward P/E of 14 and a PEG of 1.51 on the same date. Robert Half, Manpower, and Kelly Services do pay dividends though. Robert Half and Manpower both offer a 1.7% forward yield, while Kelly offers a 1.2% forward yield. On Assignment’s strong growth figures show where its money is going right now.

Takeaway

On Assignment’s specialized staffing business already produced very strong recent results. The market for all types of temp workers has expanded, and the company’s niche focus can help it maintain its margins. The sector remains subject to cyclical factors though, so investors should watch other temp agencies for signs of a slowdown. Fools give On Assignment a four star CAPS rating, also a positive sign. On Assignment looks ready for more growth right now.

The article Temporary Employment Trends Favor This Company originally appeared on Fool.com and is written by Eric Novinson.

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