Barrett (BBSI)
Barrett catches our eye. Its market-beating ROIC illustrates its ability to invest in highly profitable ventures.― StockStory Analyst Team
1. News
2. Summary
Why Barrett Is Interesting
Operating as a professional employer organization (PEO) that serves over 8,000 companies with more than 120,000 worksite employees, Barrett Business Services (NASDAQ:BBSI) provides management solutions that help small and mid-sized businesses handle human resources, payroll, workers' compensation, and other administrative functions.
- ROIC punches in at 54.6%, illustrating management’s expertise in identifying profitable investments
- Performance over the past five years shows its incremental sales were more profitable, as its annual earnings per share growth of 10.9% outpaced its revenue gains
- On the flip side, its ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 1.2% for the last five years
Barrett has the potential to be a high-quality business. If you’ve been itching to buy the stock, the price looks reasonable.
Why Is Now The Time To Buy Barrett?
Barrett’s stock price of $35.51 implies a valuation ratio of 15.3x forward P/E. Many business services companies feature higher valuation multiples than Barrett. Regardless, we think Barrett’s current price is appropriate given the quality you get.
If you think the market is not giving the company enough credit for its fundamentals, now could be a good time to invest.
3. Barrett (BBSI) Research Report: Q3 CY2025 Update
Business management solutions provider Barrett Business Services (NASDAQ:BBSI) met Wall Streets revenue expectations in Q3 CY2025, with sales up 8.4% year on year to $318.9 million. Its GAAP profit of $0.79 per share was 1.3% below analysts’ consensus estimates.
Barrett (BBSI) Q3 CY2025 Highlights:
- Revenue: $318.9 million vs analyst estimates of $319.3 million (8.4% year-on-year growth, in line)
- EPS (GAAP): $0.79 vs analyst expectations of $0.80 (1.3% miss)
- Adjusted EBITDA: $26.88 million vs analyst estimates of $29.13 million (8.4% margin, 7.7% miss)
- Operating Margin: 7.8%, in line with the same quarter last year
- Market Capitalization: $1.03 billion
Company Overview
Operating as a professional employer organization (PEO) that serves over 8,000 companies with more than 120,000 worksite employees, Barrett Business Services (NASDAQ:BBSI) provides management solutions that help small and mid-sized businesses handle human resources, payroll, workers' compensation, and other administrative functions.
Barrett Business Services operates through a co-employment model, where it shares employer responsibilities with its clients while the client companies maintain control over their day-to-day operations and workforce decisions. This arrangement allows business owners to offload administrative burdens while maintaining authority over their core business functions.
The company delivers its services through a three-tiered approach. It begins with tactical alignment, establishing administrative processes and controls. The relationship then progresses to organizational development, focusing on process improvement and leadership training. Finally, BBSI provides strategic counsel aligned with the client's long-term business objectives.
A business owner might engage BBSI to handle payroll processing, provide workers' compensation coverage, manage employee benefits, and offer human resources guidance—allowing the owner to focus on growing their business rather than administrative paperwork. For example, a manufacturing company with 50 employees could partner with BBSI to implement safety protocols, manage compliance requirements, and provide HR support without needing to hire specialized staff in-house.
BBSI generates revenue primarily through its Professional Employer Organization (PEO) services, charging clients a percentage of payroll or a flat fee for its comprehensive management platform. The company also offers staffing services, including on-demand temporary workers, contract staffing, and direct placement services.
The company maintains a decentralized delivery model with business teams typically located within 50 miles of client companies. These teams include professionals with expertise in human resources, workplace safety, recruiting, and employee benefits who provide personalized service to local businesses across 68 markets throughout the United States.
4. Professional Staffing & HR Solutions
The Professional Staffing & HR Solutions subsector within Business Services is set to benefit from evolving workforce trends, including the rise of remote work and the gig economy. With companies casting a wider net to find talent due to remote work, the expertise of staffing and recruiting companies is even more valuable. For those who invest wisely, the use of predictive AI in recruitment and screening as well as automation in HR workflows can enhance efficiency and scalability. On the other hand, digitization means that talent discovery is less of a manual process, opening the door for tech-first platforms. Additionally, regulatory scrutiny around data privacy in HR is evolving and may require companies in this sector to change their go-to-market strategies over time.
Barrett Business Services competes with professional employer organizations like Insperity (NYSE:NSP) and TriNet Group (NYSE:TNET), staffing services companies such as Robert Half International (NYSE:RHI) and ManpowerGroup (NYSE:MAN), and payroll processing providers including Automatic Data Processing (NASDAQ:ADP) and Paychex (NASDAQ:PAYX).
5. Revenue Growth
A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.
With $1.22 billion in revenue over the past 12 months, Barrett is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.
As you can see below, Barrett’s sales grew at a decent 6.5% compounded annual growth rate over the last five years. This shows its offerings generated slightly more demand than the average business services company, a useful starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Barrett’s annualized revenue growth of 7.2% over the last two years aligns with its five-year trend, suggesting its demand was stable. 
This quarter, Barrett grew its revenue by 8.4% year on year, and its $318.9 million of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 7.4% over the next 12 months, similar to its two-year rate. This projection is healthy and suggests the market sees success for its products and services.
6. Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Barrett was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.1% was weak for a business services business.
On the plus side, Barrett’s operating margin rose by 1 percentage points over the last five years, as its sales growth gave it operating leverage.
In Q3, Barrett generated an operating margin profit margin of 7.8%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.
7. Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Barrett’s EPS grew at a remarkable 10.9% compounded annual growth rate over the last five years, higher than its 6.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
We can take a deeper look into Barrett’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Barrett’s operating margin was flat this quarter but expanded by 1 percentage points over the last five years. On top of that, its share count shrank by 15.1%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth. 
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Barrett, its two-year annual EPS growth of 8.9% was lower than its five-year trend. We hope its growth can accelerate in the future.
In Q3, Barrett reported EPS of $0.79, up from $0.74 in the same quarter last year. Despite growing year on year, this print slightly missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Barrett’s full-year EPS of $2.08 to grow 15.6%.
8. Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.
Barrett broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.
Taking a step back, we can see that Barrett’s margin dropped by 7.9 percentage points during that time. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s becoming a more capital-intensive business.
9. Return on Invested Capital (ROIC)
EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Although Barrett hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 54.6%, splendid for a business services business.
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Barrett’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
10. Balance Sheet Assessment
One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.
Barrett is a profitable, well-capitalized company with $109.8 million of cash and $25.17 million of debt on its balance sheet. This $84.58 million net cash position is 9.9% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.
11. Key Takeaways from Barrett’s Q3 Results
We struggled to find many positives in these results. EPS missed, making for a weaker quarter. The stock remained flat at $40.72 immediately after reporting.
12. Is Now The Time To Buy Barrett?
Updated: December 3, 2025 at 11:21 PM EST
The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Barrett.
In our opinion, Barrett is a good company. First off, its revenue growth was good over the last five years, and analysts believe it can continue growing at these levels. And while its diminishing returns show management's recent bets still have yet to bear fruit, its stellar ROIC suggests it has been a well-run company historically. On top of that, its rising cash profitability gives it more optionality.
Barrett’s P/E ratio based on the next 12 months is 15.3x. When scanning the business services space, Barrett trades at a fair valuation. If you’re a fan of the business and management team, now is a good time to scoop up some shares.
Wall Street analysts have a consensus one-year price target of $51 on the company (compared to the current share price of $35.51), implying they see 43.6% upside in buying Barrett in the short term.