Is Mastech Digital (MHH) A Good Investment Choice?

Draco Global, an investment management firm, published its first quarter 2021 investor letter – a copy of which can be downloaded here. A return of +6.7% was delivered by the fund for the first quarter of 2021, and since the beginning, it was + 8%. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Draco Global, in its Q1 2021 investor letter, mentioned Mastech Digital, Inc. (NYSE: MHH), and shared their insights on the company. Mastech Digital, Inc. is a Pittsburgh, Pennsylvania-based digital transformation and information technology services company that currently has a $181 million market capitalization. Since the beginning of the year, MHH delivered a -0.25% return, while its 12-month gains are down by -4.23%. As of May 24, 2021, the stock closed at $15.85 per share.

Here is what Draco Global has to say about Mastech Digital, Inc. in its Q1 2021 investor letter:

MHH (169m EUR) is a provider of IT employment services and analytical services in the financial, government, pharmacy, and retail sectors. Its founders Sunil Wadhwani and Ashok Trivedi, still control 60% of the company’s ownership. Its clients are mainly in the US.

The IT segment represents 86% of sales. Although it is a highly competitive business, the expected economic recovery should be a tailwind for the entire sector. The data and analytics segment presents higher growth and margin than IT and represents the remaining 14% sales. The gross margin in this segment is 50%, well above the 21% in IT. Management expects this segment to grow very strongly in the future and its share of sales to grow to 40%.

The key in this business is having a high retention rate, a light cost structure, experience, and technological leadership. MHH has grown at a CAGR of + 10%, + 21%, and + 24% in sales, Ebit, and net profit in the last ten years. This growth is organic but also inorganic with selective purchases whenever exciting opportunities present themselves.

In 2023 we would be paying 8x profits or 6x Ebit, with an upside potential of + 63% and an IRR of 17.5%. Our average purchase price is $ 16.68 per share.”


Our calculations show that Mastech Digital, Inc. (NYSE: MHH) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the first quarter of 2021, Mastech Digital, Inc. was in 3 hedge fund portfolios, compared to 5 funds in the fourth quarter of 2020. MHH delivered a -2.10% 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.