The Most Wonderful Time of the Year?

It’s such an exciting time in the stock market. Earnings season is always the best time to be considering new positions. You get to look at a company’s latest operating results, and you get the most up-to-date forecast for the future.

A small-cap company that’s had a very successful second quarter is Providence Service Corp. (NASDAQ/PRSC). This company 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 312 government contracts in 21 states and the District of Columbia.

I’ve always thought that it’s wise to have one or two stocks in your portfolio that serve government customers. Usually, these kinds of businesses have recurring revenues streams and predictable cash flow. Providence Service has these attributes, but it is also growing like a technology company.

For its second quarter, the company generated revenues of approximately $35 million, representing an increase of 70% over the comparable second quarter in 2004. Net income came in at $2.4 million, or $0.24 per diluted share, compared to $1.5 million, or $0.15 per diluted share, for a gain of some 60%. For a company serving government customers, that’s impressive growth.

Since this company was listed on the NASDAQ in late 2003, its stock price has almost doubled. Its stock chart is compelling, rising in a consistent manner commensurate with the company’s business success.

Providence Service is another great example of an innovative company that’s growing in a diligent manner. It isn’t sexy like a technology stock, but it doesn’t have to be. The company’s in the business of helping people and its customers must really like what its doing.

And there are more strong companies like Providence out there. Keep your eyes open for more great companies reporting good results in this most wonderful time of the stock market year.