Despite the loss of the dividend, Startek (SRT) is still a good investment.
At $8.30, it is trading at less than half of fair value in relation to sales, book value and its own trading history.
In relation to other companies in the Business Services Industry, the price/sales ratio is about 0.48, compared to the average of 2.73. Sales/share is $16.19. If we multiply its sales/share by the industry average, we get: $16.69 X 2.39 = $45.56
The forward price/earnings ratio is not exactly cheap at 18.4, but the low psr gives substantial potential to increase profits with higher margins. Higher profits will, in turn, lower the price/earnings ratio.
The average price/sales ratio in the industry, however, may be unrealistic for Startek. To allow for a margin of safety, we can use a more conservative psr of 1.5. $16.69/share X 1.5 = $25
SRT is also cheap in relation to book value. The price/book ratio is 1.0 , while the industry average is 3.74. SRT has a book value of about $8/share. If we multiply the book value by the industry average, we get: $8/share X 3.74 = $29.92
Contrarian Calculation SRT is also good value in relation to its own trading history. Over the last 10 years, it's been as high as $62 and as low as about $9. Averaging these 2 extremes, we get: ($62 + $9)/2 = $35.50
This means that, at $8.30, SRT is trading at less than one quarter of its "average" price of the last 10 years.
Finances Futhermore, the low debt/equity ratio of 0.1 shows that the company is financially stable and well-managed.
The Insider Story A high-ranking insider purchased 10,000 shares at a price of $8.95/share, in December of 2007. The most conservative estimate of StarTek's fair value is about $24. At anything under $12, the stock therefore has good potential to double. It may take 3 to 5 years to double, but that provides a good rate of return for patient investors.
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