Is ASGN Incorporated (NYSE:ASGN) a Hidden Gem?

In the ever-evolving landscape of the stock market, it's easy to overlook companies that have seen significant declines in their stock prices. ASGN Incorporated (NYSE:ASGN), with its stock down 35% over the past three months, might seem like a company to avoid. However, a closer look at its financials and strategic moves suggests that it could be a hidden gem worth considering.

The Financials: A Respectable Picture

ASGN's financials over the long term look pretty respectable. Specifically, the company's Return on Equity (ROE) stands at 9.9%, calculated as US$175m ÷ US$1.8b (Based on the trailing twelve months to December 2024). This means that for each $1 of shareholders' capital, the company made $0.10 in profit. While this ROE is not exceptionally high, it is comparable to the average industry ROE of 12%, indicating that the company is generating returns on investment at a rate similar to its peers.

Earnings Growth: Steady but Modest

ASGN has shown a five-year net income growth average rate of 3.7%, which is in line with the average industry growth of 3.7% over the same period. This consistent growth, although modest, suggests that the company is maintaining its earnings trajectory despite market challenges. The company's earnings growth is similar to the average industry growth of 3.7% in the same 5-year period, indicating that ASGN's future growth potential may be limited by its current ROE and other factors at play, such as headwinds faced by the business.

Profit Retention: Fueling Future Growth

ASGN does not pay any regular dividends, which means it is reinvesting all of its profits into the business. This strategy is aimed at fueling future growth, although the low earnings growth seen so far suggests that there might be other factors at play, such as headwinds in the business environment. The company's reinvestment strategy is a double-edged sword: while it indicates a commitment to growth, it also raises questions about the effectiveness of these investments.

Analyst Estimates: A Positive Outlook

Current analyst estimates indicate that the company's earnings are expected to gain momentum. This positive outlook from analysts suggests that there is potential for future growth and improved financial performance. Analysts' optimism is based on the company's strong financial performance in Q1 2024, where ASGN reported revenues of $1.05 billion and Adjusted EBITDA of $108.3 million, both near the top-end of their guidance ranges. This strong performance suggests that the company is managing its operations effectively and is well-positioned to navigate market conditions.

Stock Repurchase Program: A Vote of Confidence

ASGN's Board of Directors approved a new, two-year $750 million stock repurchase program, which is the largest in the Company's history. This program indicates that the company believes its stock is undervalued and is taking steps to return value to shareholders. The stock repurchase program is a significant move that signals the company's confidence in its future prospects and its commitment to enhancing shareholder value.

Growth in IT Consulting Services: A Bright Spot

IT consulting revenues continued to grow and totaled 56.7 percent of consolidated revenues, up from 50.4 percent in the prior year. This growth in a high-value segment of the business indicates that ASGN is successfully positioning itself for future technological innovation and growth. The company's focus on IT consulting services is a strategic move that aligns with the growing demand for digital transformation and technological innovation.

Conclusion: A Hidden Gem Worth Considering

Despite the recent stock decline, ASGN's respectable financials, consistent earnings growth, profit retention strategy, positive analyst estimates, stock repurchase program, strong Q1 2024 performance, and growth in IT consulting services all suggest that it might be a good investment opportunity. While the company's low ROE and other factors at play, such as headwinds faced by the business, may limit its future growth potential, the overall picture is one of a company that is well-positioned to navigate market conditions and deliver value to shareholders. For investors looking for a hidden gem in the tech services sector, ASGN Incorporated (NYSE:ASGN) is worth considering.