Should Value Investors Buy Sykes Enterprises (SYKE) Stock?

Palm Valley Capital recently released its Q1 2020 Investor Letter, a copy of which you can download below. The fund posted a return of 0.79% for the quarter, outperforming its benchmark, the S&P Small Cap 600 Index which returned -32.65% in the same quarter. You should check out Palm Valley Capital’s top 5 stock picks which helped them beat the market by nearly 33 percentage points. There weren’t a lot of funds who could deliver these kinds of returns without shorting the market or using aggressive put options.

In the said letter, Palm Valley Capital highlighted a few stocks and Sykes Enterprises Inc (NASDAQ:SYKE) is one of them. Sykes Enterprises is a business process outsourcing provider. Year-to-date, SYKE stock lost 29.9% and on May 19th it had a closing price of $24.79. Here is what Palm Valley Capital said:

“Sykes Enterprises (SYKE) is a business process outsourcing (BPO) provider—a fancy name for call centers! Sykes provides its services to a variety of industries, including: communications, financial services, healthcare, technology, and retail. Sykes’s operating results tend to fluctuate with its capacity utilization, or how effectively it matches the number of operators with incoming calls. Based on our assumption of normalized capacity utilization and profit margins, we believe Sykes’ stock is selling at a discount to our valuation. Furthermore, we consider the company’s balance sheet to be very strong, with cash exceeding debt.”

In Q3 2019, the number of bullish hedge fund positions on SYKE stock decreased by about 13% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with SYKE’s growth potential.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we asked astrophysicist Neil deGrasse Tyson about Tesla, Elon Musk, and his top stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. You can subscribe to our free enewsletter below to receive our stories in your inbox:

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