I view yesterday's developments as positive for the company. The relationship with ACE removes the issue related to self insurance. I also think it is positive that an established player like ACE has reviewed the workers comp reserves. The stock had gotten ahead of itself perhaps at 100. I continue to like the long term story here. I continue to hold the large majority of shares.
Edward J. Roche
President Freedom Mountain Investments
I'm no expert on workers comp insurance, but I'm not sure the relationship with ACE removes the WC issue. As I understand it, ACE was engaged as a fronting company to satisfy the State of California. An insurance fronting company usually does claims administration and is liable if the primary obligor (in this case, BBSI) is unable to pay the claim due to bankruptcy, but other than that the front has no liability for the claims.
To your point, it probably helps to have ACE involved, but the WC liabilities still belong to BBSI and they can again find themselves in a position where their actual experience is either better or worse than their reserves. Let's hope that it won't be to the degree they discovered in the last quarter.
I don't believe that BBSI has gotten ahead of itself. The long term earnings growth is estimated to be 35% which gives it a PEG of about 1. You can argue about if that is valid or not but I like that PEG.
I often deal with small and micro caps with limited/thin trading volume. While the price volatility is higher, it creates more opportunities for the astute investor to profit. All long term outperformance must derive from systematic exploitation of market inefficiencies. The market is less efficient for small and micro caps.