Is HireQuest (HQI) A Smart Long-Term Buy?

Rhizome Partners, an investment management firm, published its first quarter 2021 investor letter – a copy of which can be downloaded here. A return of 11.5% was recorded by the fund, outperforming the S&P 500 Index that delivered a +6.2% return and the FTSE NAREIT All Equity REIT Total Return Index that was up by 8.3% for the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Rhizome Partners, in its Q1 2021 investor letter, mentioned HireQuest, Inc. (NASDAQ: HQI), and shared their insights on the company. HireQuest, Inc. is a South Carolina, US-based back-office and operational support provider that currently has a $252.3 million market capitalization. Since the beginning of the year, HQI delivered an 81.11% return, while its 12-month gains are up by 218.97%. As of May 19, 2021, the stock closed at $18.50 per share.

Here is what Rhizome Partners has to say about HireQuest, Inc. in its Q1 2021 investor letter:

HireQuest is a franchisor of primarily blue-collar staffing operations. The Company came public by conducting a brilliant reverse-merger with the publicly traded Command Center. After selling Command Center locations to franchisees and adjusting for tangible assets received, HireQuest actually received excess funds while acquiring Command Center. Through chance, we met with the former CEO of Command Center and learned a great deal about the day-to-day operation of the business. Our knowledge of the Command Center business made us hesitant to invest in HireQuest initially. But HireQuest transformed the legacy Command Centerowned store model into a franchisor model. The most important value-add of the HireQuest franchisor model is that it provides incentive for scrappy sales-oriented managers to become entrepreneurs. Like the restaurant business, it is difficult for Burger King to hire store managers who will act like owners. A franchise owner is motivated because he or she is personally responsible for the profit and loss. This provides powerful alignment of incentives. HireQuest also provides accounts receivable financing and a better workers’ compensation offering due to scale in purchasing. The new model provides more operational support and allows franchise owners to focus on the task of staffing for customers. The alignment of interest also reduces the need of regional managers which removes an extra layer of corporate overhead.

HireQuest’s franchisor model generated stable margins and solid cashflow during 2020. This is despite system-wide sales declining by one third. HireQuest also took advantage of the recent turmoil and made two acquisitions. The two deals were accretive to true owners’ earnings and added scale and diversification to HireQuest’s operation. We were also able to speak with some franchisees who are excited with the new corporate leadership. They are even thinking of opening new locations. It dawned on us that the CEO, Rick Hermanns, is a good jockey and there is a long runway for HireQuest to acquire staffing operators and convert them into franchises. We increased our investment in HireQuest during the quarter to about 3% of our
partners’ capital even though prices have increased meaningfully from our initial purchase.”

Our calculations show that HireQuest, Inc. (NASDAQ: HQI) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, HireQuest, Inc. was in 1 hedge fund portfolio. HQI delivered a 23.99% return in the past 3 months.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

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Disclosure: None. This article is originally published at Insider Monkey.