PeopleSupport: Handling your BPO Needs (PSPT, rated BUY)
Guest blogger: Larry Schutts, vice president of Stockwinners.com and a contributing editor for Theflyonthewall.com . Larry looks for stocks with technical and fundamental characteristics indicating gains in the next 30 days. However, price movements may be volatile. He includes a stop-loss price in each post. Consider selling a position should the stop-loss be violated. More and more businesses are finding that it can pay to outsource their telephone and Internet customer interface requirements to firms set up to efficiently handle such functions. One such outfit is headquartered in Los Angeles, but operates from shops overseas. PeopleSupport (NASDAQ:PSPT) provides business process outsourcing (BPO) services from facilities in the Philippines. Company personnel handle customer service calls, technical support questions, marketing campaigns and collections. The firm also transcribes voice recordings and captions television content. Services are offered via telephone, e-mail and Web chat. Expedia (NASDAQ:EXPE) and Vonage Holdings (NYSE:VG) are major customers. The firm surprised the Street earlier in the month, when it reported Q2 EPS of 16 cents and revenues of $34.3 million. Analysts had been expecting 2 cents and $31.6 million. The CEO cited increasing demand and improved operational efficiencies for the solid results. Management also issued in-line guidance for Q3/FY07 results and announced a $25 million stock buyback. Piper Jaffray subsequently upgraded the shares to "outperform" and four other brokerage firms reiterated "buys." The stock popped above 30-day, 50-day and 90-day moving average resistance on the news and then moved into a bullish "pennant" consolidation pattern. Prices frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside. Brokers recommend the issue with two "strong buys," six "buys" and five "holds." Analysts see a 22% average annual growth rate through the next five years. The PSPT P/E ratio (18.15), Price to Sales ratio (2.28), Price to Book ratio (1.45), Price to Cash Flow ratio (11.97), Sales Growth rate (32%) and Return on Assets (8.99%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 95% of the outstanding shares. Over the past 52 weeks, the stock has traded between $8.19 and $24.41. A stop-loss of $10.60 looks good here.