Artko Capital recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of -11.4% for the quarter, underperforming its benchmark, the S&P 500 Index which returned 20.5% in the same quarter. You should check out Artko Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.
In the said letter, Artko Capital highlighted a few stocks and HireQuest Inc. (NASDAQ:HQI) is one of them. HireQuest Inc. (NASDAQ:HQI) operates as a staffing company. Year-to-date, HireQuest Inc. (NASDAQ:HQI) stock lost 15.1% and on August 6th it had a closing price of $6.01. Here is what Artko Capital said:
“HireQuest (HQI) – We continue to hold a significant Core Portfolio position in HireQuest, at above 13% of the portfolio, as the company’s stock held up admirably in 2020, down a little over 10% in the first half of the year. Our thesis remains unchanged and largely on track, with HireQuest, the larger acquiring entity through a reverse merger in 2019, acquiring approximately 20 owned branches from Command Center, the public company. Through sales and franchise agreements over the last year HireQuest converted the branches into franchises where at the end of March 2020 it managed 135 staffing franchises throughout the United States.
Of course, owning a staffing business in the middle of pandemic will have certain moving parts and having a number of branches closed and not generating franchise fees in the spring is unlikely to result in growth this year. However, the dynamic of having a working capital intensive franchisor business during the slowdown results in significant cash cycle release, where in the 1st quarter the $75mm market cap company generated $5.5mm in operating cash flow adding to its $4.5mm cash balance. We expect an additional $5-10mm in cash flow generation this year from both, ongoing operations of franchisee fees and notes receivable interest, and more working capital releases. Of course we’d rather see growth in the topline but given the recessionary environment building up a significant cash balance is likely to allow the company and its 44% owner and founder CEO Rick Hermanns to be strategically opportunistic. In fact, in June 2020 the company whose 68% of the shares are owned by insiders, and averages 6,600 daily average announced a 1mm share, or 7.5% of outstanding shares, buyback. The bigger number however is that this buyback represents close to 25% of the float, and we’ll be looking forward to seeing the execution of this buyback. In the meantime, the CEO and the board have made 116 insider purchases on the open market in 2020 giving us somewhat of an increased confidence level.
Its hard to predict where this company will end in 2020 with parts of the economy like hospitality essentially shut down, while other parts like homebuilding surging, however, we expect the company to continue to generate positive, ex working capital release, earnings and cash flows in 2020. Looking a few years out, with the transition to an all franchise model and a likely return of positive economic growth in late 2021/early 2022 we can see the company generating a growing $10mm+ a year in Earnings Before Interest & Taxes (EBIT) / Free Cash Flow (FCF) at 60%+ operating margins and returning this cash to shareholders via more buybacks and dividends with our intermediate term price target at above $10/share.”
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Video: Top 5 Stocks Among Hedge Funds
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Disclosure: None. This article is originally published at Insider Monkey.