The other day I participated in an investing podcast hosted by Fred Rockwell of TheBulldogInvestor.com. We discussed a variety of investing topics germane to the micro-cap world. Anyone interested in listening to the podcast can find it here or on iTunes.
At the end of the podcast, I described a stock that I like a lot and have purchased for Alluvial Capital Management clients. The stock is Command Center, Inc. The stock ticker is CCNI. As I type, the stock price is $0.70 and the market capitalization is $46.2 million. Frankly I believe I described the stock fairly well in the podcast but I’ll summarize my views below.
Command Center is a temporary labor provider to blue collar industries like light construction, hospitality, various trades and others. The company has 55 storefronts in 22 states. A number of factors combine to make Command Center stock attractive at these price levels.
Savvy Leadership/Improved Operations
Over the past few years, Command Center has turned itself from an unfocused and struggling company to a well-run and very profitable operation. Management focused on winning high-margin business, controlling operating costs and making each company store responsible for its own profitability. The result has been rapid growth in operating income even as top-line revenue has contracted. CEO Frederick “Bubba” Sandford deserves a lot of credit for the company’s recent success.
Strong Balance Sheet
The company’s success has resulted in a lot of cash flow, and Command Center has used that cash to all but eliminate its debt and build up a substantial cash cushion. Excess cash is around $6 million, or 13% of market capitalization.
Command Center trades at just 6.2x operating income and 5.7x EBITDA (I may have said 7x operating income on the podcast, so please excuse my memory lapse.) The company has a small NOL balance but will likely become a normal taxpayer in 2016. Those are low ratios for any industry, but especially for the staffing industry where low capex requirements and growth potential leads investors to assign high valuations. Command Center’s larger competitors trade at an average of 10.1x EBITDA per the company’s March 2015 investor presentation. Were Command Center to trade at 9x EBITDA, shares would reach $1.05.
Opportunities to Reward Shareholders
Command Center has indicated it will use its cash either to repurchase stock, or to conduct small acquisitions or open new storefronts. The company has approved a $5.0 million share repurchase plan. On the topic of acquisitions, the company notes that many smaller competitors are “mom-and-pop” type operators that can be acquired for only a few times cash flows. Either returning capital to shareholders or investing it productively would be positive outcomes that would benefit shareholders.
Here’s a link to the company’s recent investor presentation, which does a good job illustrating the company’s turnaround and future opportunities. I believe Command Center shares are worth far more than the current trading price and I look forward to seeing what company management can do in 2015 and beyond.
Alluvial Capital Management, LLC holds shares of Command Center, Inc. for client accounts. Alluvial may buy or sell shares of Command Center, Inc. at any time.
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