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New interesting stocks

2/28/2019

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Found two more interesting stocks today: ARCE and DLHC.

ARCE (Arco Platform) provides education software to hundreds of private schools in Brazil. It's used for online student exams, student benchmarking, displaying individualized content and syllabus based on a student's progress, managing school administration and much more. The company has contracted over 1,100 schools with revenues of $87 million TTM.  Revenue in latest quarter grew by 70%, the stock looks a bit pricey at 15 times sales, but based on estimated sales of $100 million for 2018 and taking out the net cash position, the stock is selling for less than 10 times sales. Definitely worth a closed look.

The next stock is DLH Holdings (DLHC) a company that provides health care benefits, software solutions and other services to government institutions. They are growing by around 10% per year, but what caught my interest was a P/FCF multiple of only 5, which is very hard to find these days. It has a market cap of only $74 million and sales of $133 million, with earnings depressed last year due to some one-time effects. Their business description is pretty vague, I don't understand yet how they make money but will try to figure it out. In the latest quarter, they had 7 million in debt and 4.3 million in cash. With a Piotroski score of 8, the balance sheet looks pretty solid. Margins are low because it's a government contracting business, returns on invested capital are likely to be low as well in the future. The valuation multple is too low to ignore, have to look further into it.

  
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