Why Beaten-Up GP Strategies Stock Could Double

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GP Strategies Stock Worth a Look

More than half of the stocks in the S&P 500 are in a bear market, and even more stocks in the Russell 2000 are bearish. While the current investment environment is full of trepidation, there are opportunities for investors with a longer-term view.

In the battered small-cap space, a business consulting stock with a decent risk-to-reward is GP Strategies Corp (NYSE:GPX), down 45% this year and significantly below its record high of $31.25 in November 2017.

The fact that GPX stock declined 30% in the last three months alone is excessive and makes GP Strategies worth a look.

GP Strategies has been around for more than 50 years providing performance improvement solutions to clients worldwide. Its services include training, digital learning strategies and solutions, management consulting, and engineering services.

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GPX counts many leading companies as clients, including around 120 of the Fortune Global 500 companies and 146 companies on the Fortune 500 list.

The company serves 16 different sectors, including manufacturing, process and energy, commercial, and government.

As the below chart illustrates, GP Strategies stock has broken below several technical support levels and is trading below its 50-day and 200-day moving averages.

Chart courtesy of StockCharts.com

The downside risk remains and could see GPX stock falter even more, but I like the contrarian opportunity. The longer-term target is $24.00.

My Bullish Case for GP Strategies stock

The key for GP Strategies Corp is that the company needs to deliver some consistent financial results.

Annual revenue has largely been in the $400.0–$500.0 million level, and there was growth in three of the past four years.

Year Revenue (Millions) Growth
2013 $436.7
2014 $501.9 15%
2015 $490.3 -2.3%
2016 $490.6 0.1%
2017 $509.2 3.8%

(Source: “GP Strategies Corp.” MarketWatch, last accessed December 20, 2018.)

A concern for GP Strategies is that its revenue growth rate is estimated to decline to 1.4% (to $516.1 million) in 2018 . The positive news is that the company’s revenue is slated to ramp up by 8.6% to $560.6 million in 2019. (Source: “GP Strategies Corporation (GPX),” Yahoo! Finance, last accessed December 20, 2018.)

GP Strategies is profitable on both a generally accepted accounting principles (GAAP) and adjusted basis, but it needs more consistency.

Year GAAP Diluted Earnings

Growth

2013

$1.23
2014 $1.43

16.3%

2015

$1.09 -23.8%
2016 $1.21

11.0%

2017

$0.76

-37.2%

(Source: MarketWatch, op cit.)

For 2018, GP Strategies is expected to report adjusted earnings per diluted share of $0.83, which is lower than the $1.11 in 2017. For 2019, the company is estimated to increase the figure to $1.33. (Source: Yahoo! Finance, op cit.)

GP Strategies has been producing positive free cash flow, which is impressive for a company with a market valuation of $200.0 million.

Year

Free Cash Flow (Millions)

Growth

2013

$9.5
2014 $28.2

196.1%

2015

$23.2 -17.9%
2016 $16.7

-28.1%

2017

$23.5

41.1%

(Source: MarketWatch, op cit.)

Analyst Take

The fundamentals are intriguing for GP Strategies, especially if the company can generate consistent growth.

GPX stock trades at 9.7 times its 2019 consensus earnings estimate. It also trades at an attractive 0.4 times its sales and 1.1 times its book value.

In my view, GP Strategies stock’s low valuation offers investors some cushion against further weakness.