In my weekly premium newsletter -- Undiscovered Micro-Cap Gems -- my goal is to introduce readers to a variety of promising micro-cap investing ideas that they may wish to consider for their portfolios. In doing so, I generally look for small, neglected companies that have been overlooked by conventional Wall Street sources. I also look for undervalued firms that are trading at a steep discount to their intrinsic value. Many of these individual investment ideas have the potential to deliver triple-digit percentage gains in the years ahead.

Below you'll find an in-depth look at one such investing idea that I introduced my readers to in a recent issue. To gain access to dozens of similar investing ideas each and every week, you'll need to subscribe to my Undiscovered Micro-Cap Gems service. In the meantime, I sincerely hope you enjoy today's sneak peak at one of my most recent micro-cap investing ideas...

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Westaff Inc. (WSTF, $3.60)
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Westaff is a staffing firm that specializes in the placement of industrial, clerical, and technical workers. While it focuses on filling temporary staffing needs, the firm does provide temp-to-hire and permanent placement, as well as ancillary services like payroll, drug testing, and background screening. The company conducts business from over 250 offices nationwide, and also has substantial overseas operations in the UK, Australia, and elsewhere.

From a valuation standpoint, WSTF is one of the most attractively priced stocks in the staffing industry. Of the many financial ratios available, I consider Price/Sales (P/S) to be one of the best ways to value stocks in this group. On that basis, Westaff currently ranks as the most attractive stock in the industry with a P/S ratio of just 0.09. That compares very favorably to a five-year average for the general industry of 0.61. If Westaff were to trade at an industry average P/S multiple, then the company's shares would appreciate more than seven-fold from current levels.

Another useful way to gauge stocks in this sector is by examining cash flows. Again, Westaff looks strong on this front as well, with a Price/Cash Flow (P/CF) ratio of just 3.56 -- well below the industry norm of more than 17. Here is a quick breakdown of how WSTF currently stacks up against its peers:

For a relatively small firm with a market capitalization of less than $60 million, Westaff has a substantial book of business, with annual revenues more than ten times greater than the firm's market value -- $624 million and growing. Furthermore, the strong and improving cash flows generated by the company's operations have steadily increased the quality of its balance sheet. Also, net tangible assets have risen nicely over the last few quarters. Although the firm's future was somewhat uncertain a few years ago, all of these factors help confirm my belief that the company is now on the right track.

Last quarter, though net income slipped slightly lower, revenues rose +5.3% to $138.3 million. Most of this growth was attributable to the company's international operations, where revenues (after stripping out the impact of favorable foreign currency fluctuations) jumped nearly +18%. Furthermore, gross margins expanded by 40 basis points during the quarter to 17.3%, as an increase in average billing rates helped offset costs associated with Sarbanes-Oxley regulations.

Westaff has reduced its long-term debt in recent years, and shareholder equity is increasing. I'm also encouraged to see an options package in place that provides incentives for management to maximize shareholder value. Currently, insiders own just over half of all outstanding shares. If the company can string together a few more quarters of solid results, then shares of this undervalued gem could move sharply higher.

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Important Note: The above article was merely a small excerpt from a recent issue we sent to subscribers of our premium value investing service -- Margin-of-Safety Investing. In each issue of that newsletter, editors Nathan Slaughter and Paul Tracy deliver an in-depth look at a variety of other deeply discounted stocks that should provide investors with a solid margin of safety at current prices. To receive your copy of our most recent issue of Margin-of-Safety Investing, as well as other guidance similar to this twice per month, you'll need to subscribe to this publication. To learn more, please visit:
https://www.streetauthority.com/subscribe-msi.asp

Thanks for reading!

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