Artko Capital Expects Growth Opportunities in HireQuest (HQI)

Artko Capital, an investment management company, recently released its second quarter 2022 investor letter. A copy of the same can be downloaded here. In the second quarter, an average partnership interest in the fund was down 26.03% net of fees; year to date, it is down 33.4% net of fees. However, investments in comparable indexes like Russell 2000, Russell Microcap, and the S&P 500 were down 17.2%, 19.0%, and 16.1%, respectively, in the second quarter. The majority of the fund’s performance was contributed by Currency Exchange International. For more information on the fund’s top picks in 2022, please check its top five holdings.

Artko Capital discussed companies like HireQuest, Inc. (NASDAQ:HQI). Headquartered in Goose Creek, South Carolina, HireQuest, Inc. (NASDAQ:HQI) is a staffing solutions providing company. The stock of HireQuest, Inc. (NASDAQ:HQI) closed at $15.01 per share on August 18, 2022. In one month, the stock returned -1.18% and its shares lost 18.47% of their value over the last 52 weeks. HireQuest, Inc. (NASDAQ:HQI) has a market capitalization of $207.357 million.

Here is what Artko Capital specifically said about HireQuest, Inc. (NASDAQ:HQI):

“HireQuest, Inc. (NASDAQ:HQI) – What recession? On the heels of the July 2022 jobs report that showed 528,000 jobs added, a 3.5% unemployment rate, and a 5.2% wage growth number HireQuest, a staffing branch franchisor, reported 41% organic revenue growth and 63% overall revenue growth number this past quarter. A tight demand market for labor, higher wages, and the company’s franchise operator model continues to deliver on all cylinders. HQI continues to highlight the difficulty in predicting macro factors to fundamental results. While we have now had two quarters of negative GDP growth there are nearly 2x as many open jobs as there are people who are employed seeking to fill them. According to HireQuest’s CEO, Richard Hermanns, it will take quite a few layoffs or cutbacks on planned hirings before “we get to a point that our overall demand will be affected. Demand has remained very strong and frankly, beyond our capacity to fill it. I would say that our abilities to fill orders are improving somewhat …but not enough to offset the gap between what our orders are and what our supply is.”

On the other hand, the company’s strategy of expanding both via M&A (five acquisitions in the last year completed and integrated) and organically, (new offices opened in Boston and Chicago, by existing franchisees) continues to deliver. With an acquisition target market of 44,000 staffing companies in the US, we believe that we are still in the very early innings of HireQuest’s growth.

We expect the $220mm market cap company to deliver over $21mm in Free Cash Flow in 2022. The macroeconomic uncertainty leaves our projections at what we consider conservative: $25mm and $30mm for 2023 and 2024 ($32.5mm/$39mm EBITDA) and a near-term price target of $26.00, or 80% upside from here. The current valuation, at what we consider a sustainable 10% Free Cash Flow yield, provides a significant margin of safety. We are likely to see more upside to these numbers with stabilization and more confidence in the fundamental economic factors as well as additional M&A.”

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HireQuest, Inc. (NASDAQ:HQI) is not on the list of 30 Most Popular Stocks Among Hedge Funds. As per our database, HireQuest, Inc. (NASDAQ:HQI) was held by 5 hedge fund portfolios at the end of the first quarter, and 3 in the previous quarter.

We discussed HireQuest, Inc. (NASDAQ:HQI) in another article and shared Artko Capital’s views about the company in the previous quarter. For more investor letters from hedge funds and other prominent investors, you can check our hedge fund investor letters Q2 2022 page.

Disclosure: None. This article is originally published at Insider Monkey.