By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 3/24/11 Sign up for free Cabot Wealth Advisory e-newsletter
Supply and demand is very much what 51job (JOBS), the Chinese employment and human resources services company is all about.
When 51job was founded in the 1990s, finding a job (or an employee, for that matter) meant checking the listings in a weekly employment newspaper. The company excelled at getting employment news out and still publishes millions of paper copies of its recruitment newsletter every week in the 16 Chinese cities it covers.
But the real action now is at 51job.com, the company’s website. The site has over 45 million registered members and a database of 36 million résumés. (It’s definitely worth a click to see the company’s Chinese-language website, which is a starburst of flashing, competing posts that vie for attention.) Online recruitment is now solidly ahead of print as the leading source of revenue.
The big story on 51job is the company’s recovery from the two-year global economic slowdown of the Great Recession. While it remained profitable, never booking a quarter with a loss, revenue fell by 4% in 2009. By contrast, the company rebounded big starting in Q4 2009, the first of three consecutive quarters with triple-digit earnings growth. Revenue growth hit a solid 36% in 2010 with a pretax margin of 31.3%. Analysts are looking for revenue growth to hit 40% in 2011.
Margins are expected to remain high as the company moves into value-added services like executive searches, training, software, salary services and business process outsourcing. Elimination of high-overhead paper publication in some cities will also help.
51job has been through the fire and has come out stronger and more committed to the Web and to providing more profitable services.
JOBS has been trading under resistance at 60 since the middle of January, and the March pullback even pulled it below its previous support at 55. But during the last few days, the stock has caught an updraft and has broken though 60, although volume has not been above average.
This is a solid story with deep roots in the Chinese economy, and I’ll be watching it closely to see if it belongs in the Cabot China & Emerging Markets Report.
By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 10/7/10 Sign up for free Cabot Wealth Advisory e-newsletter
If you take the responsibility seriously, recommending any stock is a genuine risk. After all, mutual fund managers who can pick 51% winners—even with all the research and analysis resources in the world—are considered real gunslingers. For me, if a stock doesn’t meet all of my requirements, it goes on the Watch List, not into the portfolio.
That’s why I won’t be recommending 51job (JOBS), the Chinese recruiting and human resource company, for the readers of Cabot China & Emerging Markets Report.
The company has lots of things going for it, including its admirable earnings line (up 300%, 233% and 120% from terrible 2008/09 levels) and revenue growth (gains of 15%, 43% and 37%). After-tax profit margins have been over 20% for the latest four quarters, with an juicy 24.9% in the latest quarter. And earnings estimates are running at $1.14 per share for 2010, well up from $0.73 in 2009.
51job is a pretty seasoned company for China, founded in 1998 and based in Shanghai, which is the heart of China’s commercial zone. The company serves both potential employers and job seekers, using both online and print media. The 51job Weekly is a recruiting publication that’s customized for particular cities and distributed in newspapers or as a stand-alone. 51job also offers executive search and business process outsourcing services, and will train clients in job skills from secretarial and manufacturing to management and financial planning.
JOBS has been on a roll since April 2009, with a seven-month basing period from December 2009 to July 2010 under resistance at 20. The blastoff from that base began in July, but really picked up speed (and volume support) in September.
All in all, it’s a great package, and the prospects for the company are excellent as China’s need for better-trained employees and executive talent heats up. 51job is a very direct play on the growth of China’s domestic economy.
So what’s the problem? It’s the discouragingly low volume the stock trades at. With only an average of 150,000 shares changing hands per day, the stock’s volatility is just too high to recommend to a large group of people. It’s an appropriate vehicle for the nimble individual investor, but its float of seven million shares will have to increase to make it attractive to institutional investors … and to me, of course.
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A researcher and writer for over 30 years, Paul Goodwin has been a member of the Cabot investment team and editor of
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