To be blunt, employment services specialist Robert Half (NYSE:RHI) – which acts as a middleman entity connecting prospective job applicants with hiring employers – has been a disappointing investment. With a tight labor market, any qualified individual could seemingly find employment. However, a possibly cooling labor market could be what the company needs to regain its relevance. As a risky contrarian idea, I am bullish on RHI stock.
Slowing Labor Market May Smile on RHI Stock
Prior to the most recent disclosure, the monthly employment picture looked incredibly encouraging for the broader economy. With the underlying numbers consistently beating analysts’ expectations, the dynamic reflected a tight labor market. Essentially, if job applicants met baseline qualifications, it wouldn’t be too difficult for them to find gainful employment.
Plus, for many years following the initial COVID-19 disruption, the central narrative has been that employers are desperate for workers. With that being the case, prospective workers theoretically had their pick of the lot. They could choose to be extremely selective, only signing on the dotted line as long as they were truly satisfied.
This framework obviously puts RHI stock in a bind. With continued resilience in the labor market, Robert Half has seen a steady erosion in equity value since last December. So, when the April jobs report came out, for the middleman, it was a case of bad news being good news.
Specifically, the latest nonfarm payroll data showed that the economy added 175,000 jobs last month. That was below the consensus target of nearly 243,000 jobs. It was also a significant drop from March’s reported print of 303,000 jobs added.
To be sure, a slowing job market is a mixed bag for policymakers. Yes, on one hand, the Federal Reserve has been hoping for a disinflationary environment. Otherwise, lowering the benchmark interest in an overheated economy would be incredibly problematic. Still, the other side of the equation is that if the economy slows too much, it presents stability issues.
However, it can’t be ignored that if more prospective workers find the employment market challenging, this should immediately raise the profile of RHI stock. Robert Half will no longer be seen as fleecing the flock. No, it would actually be providing a much-needed service.
Robert Half to the Rescue
Amid the roar of the jobs print (the April numbers aside), what has gone relatively ignored is that white-collar workers are having a difficult time securing employment. That has been the case since at least last year. Multiple publications have reported that individual job applicants are being put through the wringer only to be ultimately “ghosted.”
That’s disheartening for obvious reasons. However, it may also reflect shifting realities in the employment market. Employers are becoming much more picky because the power pendulum has swung back in their favor.
Frankly, this dynamic wasn’t that difficult to realize. As multiple TipRanks articles pointed out, companies across the industrial spectrum (not just technology) have been issuing mass layoffs. Adding to the misery of those seeking higher education, there may be a glut of white-collar applicants.
At the same time, the U.S. economy (and, to a lesser extent, Western economies) has experienced a blue-collar bonanza. That makes perfect sense. The job opportunities that are out there are for positions that few want. Most are seeking white-collar positions, and those are the ones that are getting axed.
Now, it’s unlikely that we’ll see a blue-collar apprenticeship bonanza. That would require reversing decades of academic ideologies (some might say indoctrination). Additionally, the extensive investments made in the higher education system necessitate that graduates make effective use of their degrees.
However, with the steep competition (that’s getting steeper) for white-collar jobs, applicants need an edge. Potentially, this edge could be provided by Robert Half, which is why RHI stock is so compelling. Robert Half has the connections, and it can filter for its corporate clients only the best candidates for the underlying opportunities.
Hiring companies save time and resources, Robert Half gets its cut, and hungry job applicants get their careers on track. Under these shifting sands, it’s a win-win across the board.
RHI Offers Hidden Value
With the fundamental context presented, let’s talk about the valuation. Right now, RHI stock trades at a trailing-year revenue multiple of 1.21x. That’s a little bit higher than the staffing and employment sector’s average revenue multiple of 1.12x.
Arithmetically speaking, the aforementioned multiple for RHI stock may get worse based on forward projections. That’s because even as a high-side estimate for Fiscal 2024, the company may only reach sales of $6.29 billion. Last year, the company posted revenue of $6.39 billion.
That said, the high target for Fiscal 2025 stands at $6.85 billion. It’s possible that this revenue print may arrive sooner than analysts anticipate because of the shifting dynamics in the labor market. Therefore, the more realistic revenue multiple (assuming a share count of 104.93 million) could be in the neighborhood of 1.08x.
Is RHI Stock a Buy, According to Analysts?
Turning to Wall Street, RHI stock has a Hold consensus rating based on one Buy, three Holds, and two Sell ratings. The average RHI stock price target is $71.60, implying 0.7% upside potential.
The Takeaway: RHI Stock May be Better Positioned Than You Think
Staffing agency Robert Half has been a stinker, and the robust jobs report seemingly tells the tale. However, a slowdown in the April report brought to light the possibility of a hiring slowdown. The matter has been exacerbated by rising challenges in the white-collar sphere. This all makes Robert Half much more relevant, making RHI stock a surprisingly compelling deal for the speculator.
