Barrett (BBSI)
Barrett catches our eye. Its projected EPS for the next year implies the company’s fundamentals will improve.― 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.
- Industry-leading 57.3% return on capital demonstrates management’s skill in finding high-return investments, and its returns are growing as it capitalizes on even better market opportunities
- Decent 5.2% annual revenue growth over the last five years beat most of its peers, showing customers find value in its products and services
- One risk is its low free cash flow margin gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Barrett is solid, but not perfect. If you like the story, the valuation seems fair.
Why Is Now The Time To Buy Barrett?
Barrett is trading at $42.42 per share, or 18.7x forward P/E. Scanning the business services peers, we conclude that Barrett’s valuation is warranted for the business quality.
It could be a good time to invest if you see something the market doesn’t.
3. Barrett (BBSI) Research Report: Q1 CY2025 Update
Business management solutions provider Barrett Business Services (NASDAQ:BBSI) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 10.1% year on year to $292.6 million. Its GAAP loss of $0.04 per share was 68.6% above analysts’ consensus estimates.
Barrett (BBSI) Q1 CY2025 Highlights:
- Revenue: $292.6 million vs analyst estimates of $285.9 million (10.1% year-on-year growth, 2.3% beat)
- EPS (GAAP): -$0.04 vs analyst estimates of -$0.13 (68.6% beat)
- Adjusted EBITDA: -$2.21 million vs analyst estimates of -$5.5 million (-0.8% margin, 59.7% beat)
- Operating Margin: -1.4%, in line with the same quarter last year
- Market Capitalization: $1.06 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. Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years.
With $1.17 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 5.2% annualized revenue growth over the last five years was decent. This shows its offerings generated slightly more demand than the average business services company, a helpful starting point for our analysis.
Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Barrett’s annualized revenue growth of 5% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak. 
This quarter, Barrett reported year-on-year revenue growth of 10.1%, and its $292.6 million of revenue exceeded Wall Street’s estimates by 2.3%.
We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates. This signals Barrett could be a hidden gem because it doesn’t get attention from professional brokers.
6. Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.
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 1.1 percentage points over the last five years, as its sales growth gave it operating leverage.
This quarter, Barrett generated an operating profit margin of negative 1.4%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.
7. Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Barrett’s unimpressive 5% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.
In Q1, Barrett reported EPS at negative $0.04, down from negative $0.01 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Barrett’s full-year EPS of $1.95 to grow 16%.
8. Cash Is King
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
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, an encouraging sign is that Barrett’s margin expanded by 4 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.
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? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Barrett’s five-year average ROIC was 63%, placing it among the best business services companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.
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. Barrett’s ROIC has increased significantly over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.
10. Balance Sheet Assessment
Businesses that maintain a cash surplus face reduced bankruptcy risk.
Barrett is a well-capitalized company with $99.14 million of cash and $16.64 million of debt on its balance sheet. This $82.5 million net cash position is 7.8% 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 Q1 Results
We were impressed by how significantly Barrett blew past analysts’ EPS expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The stock remained flat at $40.77 immediately following the results.
12. Is Now The Time To Buy Barrett?
Updated: May 16, 2025 at 11:58 PM EDT
We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Barrett, you should also grasp the company’s longer-term business quality and valuation.
There are a lot of things to like about Barrett. To kick things off, its revenue growth was decent over the last five years. And while its low free cash flow margins give it little breathing room, its projected EPS for the next year implies the company’s fundamentals will improve. On top of that, its stellar ROIC suggests it has been a well-run company historically.
Barrett’s P/E ratio based on the next 12 months is 18.7x. Looking at the business services landscape right now, Barrett trades at a pretty interesting price. 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 $46.75 on the company (compared to the current share price of $42.42), implying they see 10.2% upside in buying Barrett in the short term.
Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.
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