Business: Digital Health Care and IT Staffing Market Capitalization: $174 million P/E: 16
Computer Task Group (CTGX), or CTG for short, operates two business units. The first provides information technology (IT) staffing for clients, be it for short-term projects or permanent positions. This business unit accounted for 66% of total sales last year. It's a steady and somewhat profitable business (operating margins were 3% last year). However, management is turning its attention to the other division, which provides IT solutions in health care, including the rapidly evolving market for digital medical records.
[CTG's foray into digital medical records isn't surprising. My friend Andy Obermueller thinks it's a bona fide game-changing opportunity for the medical industry -- and shareholders of companies that facilitate the transition.]
This segment offers much faster growth potential and operating margins closer to 10%. CTG is also one of the top three providers of e-medical record solutions for hospitals and health care providers. Affiliated Computer Services, which was acquired by Xerox (NYSE: XRX) in August 2009, and accounting and consulting firm Deloitte, are the other two. Despite the strong competition, CTG has become IBM's (NYSE: IBM) preferred provider of health care solutions and related work. In fact, IBM accounted for 30% of CTG's total sales last year alone.
In the past five years, CTG has improved annual sales by about 11% and projects an annual profit increase close to 20% for the three-year period ending in 2011. The one analyst who follows CTG predicts earnings per share of $0.72 and sales growth of nearly 18% to almost $400 million this year. With a reasonable price to earnings (P/E) ratio, the exposure to a fast-growing market and good chances to boost total company profit margins and overall growth, CTG is an extremely interesting small-cap play.