Small-Cap Company Benefits on Multiple Counts

A company (and a stock) I’ve always admired is Providence Service Corp. (NASDAQ/PRSC). I mentioned this company in this column throughout the summer of last year and the company is still in the business of helping people.

Providence Service provides social services to government sponsored clients under programs such as welfare, juvenile justice, Medicaid, and corrections. The company’s counselors, social workers, and mental health professionals work with clients that are eligible for government assistance due to income level, disabilities or court order. Providence Service operates no beds, treatment facilities, hospitals, or group homes, but provides its services in the client’s own home or other community setting. The company currently has 527 government contracts in 25 states and the District of Columbia.

As I mentioned last year, I always like companies that are in the business of helping people directly. Furthermore, I think it is always useful to hold in your portfolio one or two stocks that serve government customers. Usually, these kinds of operations have recurring revenue streams and predictable cash flows.

Providence Service’s most recent fourth quarter represented the company’s 35th consecutive quarter of revenue growth. The company generated fourth quarter 2005 revenues of $41.1 million, representing an impressive 39% increase over revenues of $29.6 million in the fourth quarter of 2004.

Net income of $2.4 million, or $0.24 per diluted share, was even with the comparable quarter in 2004.

For all of 2005, the company generated revenues of $145.7 million, which represents excellent growth of 50% over revenues of $97.0 million in 2004.

Net income for the year was $9.4 million, or $0.95 per diluted share, as compared to net income of $7.1 million, or $0.76 per diluted share, in fiscal 2004.

The stock is fully priced now on the stock market, but it wasn’t last summer. I just like this company because it has a track record of success, lots of recurring revenues, and is in a business that is genuinely trying to improve peoples’ lives.

This relatively unknown small-cap company is an example of a win-win situation for all participants concerned. The company’s growth might slow over the next few years, but I think it will continue to be a great success on all fronts.