PeopleSupport Stays a Buy
PeopleSupport, Inc. (PSPT) is well-positioned to benefit from the fast-growing offshore BPO (business process outsourcing) market. The company's rapid revenue growth and investments production capacity in the Philippines and Costa Rica resulted in a negative earnings surprises and significant near-term margin contraction. The news drove the stock down to reasonable valuation levels as earnings momentum investors exited their stock positions.
PeopleSupport's long-term prospects are still promising despite the loss of the
Vonage (VG) contract in 2007. The management strengthened the company's position by pursuing industry verticals and expanding geographically. It maintains a strong balance sheet with minimal debt. The stock is rated a Buy.
The company is currently trading at a P/E of 18.4. The target price is $15.00, which is the price of the initial buyout offer that was rejected by the Board. It appears that the Board was attempting to negotiate a higher offer, which ultimately could not be financed. The original $15.00 proposal now appears fair.
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