Mastech Digital (NYSE:MHH), based outside Pittsburgh, PA is an IT staffing business with a growing data and analytics consulting and project management service serving blue chip customers in the US. The data and analytics business, Mastech InfoTrellis, was 14% of sales last quarter and its run rate grew from $21.4 million to $28.6 million, up 33.6% year over year. An improving balance sheet and accelerating earnings generated through internal growth and acquisitions, should afford it a higher valuation based on an expanding multiple.
‣ Mastech Digital had historically been an IT staffing company, but it entered the data and analytics business in 2017 with its purchase of InfoTrellis. This business is higher margin and faster growing than IT staffing and is becoming an increasingly bigger part of total sales. This math should lead to accelerating earnings growth as well as a higher valuation for the stock.
‣ Mastech plans to augment its internal growth with acquisitions in the data and analytics space to expand its capabilities. It has been paying off debt through internally generated cash flow, which leaves it with increased debt capacity for asset purchases as well as cash to expand internationally.
‣ The economy continues robust and IT workers continue to be in short supply leading to continued demand from customers.
‣ The company is currently valued at an enterprise value to projected 2020 sales of 0.8 times, below that of its peers who trade at an average of 1.1 times. With accelerating growth and expanding margins we believe it could deserve a premium to its peers in the future. Using the average metric, we believe MHH common stock is worth $19.00 per share.
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