Recruiting in China

By Rick Aristotle Munarriz (TMFBreakerRick)
August 8, 2006

Running a human-resources business in China has to be like shooting fish in a barrel. Between a dynamic economy that has grown at a 10% clip over the past few years and 1.3 billion potential hires in the world's most populous nation, 51job (Nasdaq: JOBS) is in a good place. Unfortunately, investors think the company should be in an even better place.

Monday night, the company behind the popular 51job Weekly employment classifieds publication saw second-quarter revenues climb 18% higher to hit the U.S. equivalent of $21.7 million. That may not seem like much, especially when you consider that the slower stateside economy still found Monster.com parent Monster Worldwide (Nasdaq: MNST) posting a 36% spike in revenues over the same three months.

However, it's also important to contrast 51job's slower print business -- whose revenue climbed just 7% higher during the quarter -- with the online-recruitment and executive-search segments, which posted hearty top-line improvements of 41% and 36%, respectively.

Margins improved to the point of allowing profits to soar 79% higher to $0.16 per American Depositary Share, before stock-based compensation expenses and currency-related hits. Analysts were expecting earnings to clock in at only $0.11 per ADS, even though they nailed the top-line gain.

The current quarter will be challenging, though. The company is looking to earn between $0.13 and $0.15 per ADS on $21.6 million to $22.9 million in revenue. That's fine on the earnings front, since Wall Street was projecting profitability of $0.13 per ADS. But it's not cool on the top line, where the potential of flat sequential growth flies in the face of the $24.1 million that analysts have been targeting.

The world understands the potential in China. Investors do, too. Our stock newsletters are ripe with recommendations in the region. Ctrip (Nasdaq: CTRP) is a Motley Fool Hidden Gems selection. Motley Fool Stock Advisor has picked SINA (Nasdaq: SINA) and TOM Online (Nasdaq: TOMO). The Motley Fool Rule Breakers newsletter service has singled out three China-based companies, including online-gaming leader NetEase (Nasdaq: NTES) and solar-power pioneer Suntech Power (NYSE: STP).

No, 51job hasn't made the cut in any of our newsletters, but the after-hours slide, which drove the shares into the high teens, does pose some intriguing value-based possibilities. Now trading at 38 times this year's earnings and 28 times next year's profit potential, 51job isn't a screaming value. But with an improving economy placing a greater value on landing quality hires, the company is at the right place at the right time. Risk-tolerant investors may also be feeling the same way.