Heidrick & Struggles International, Inc. – Currently Listed as ‘HSII’ on the Nasdaq Stock Market

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Company Overview

Heidrick & Struggles International, Inc. (“Heidrick & Struggles” or “HSII”) self-describe their business in the following manner:

A human capital leadership advisory firm providing executive search, consulting and on-demand talent services to businesses and business leaders worldwide to help them to improve the effectiveness of their leadership teams. [3]

The Company has five operating segments, with The Executive Search business operating in the Americas, Europe and Asia Pacific (and thus splitting this part of the Business into such corresponding segments); and then there is the Heidrick Consulting and On-Demand Talent businesses, which both operate globally. Please see the following descriptions of these operations:

  • Executive Search: Whereby the Company helps clients to build the best leadership teams possible within their organization, with an emphasised focus on the placement of top-level senior executives.
  • On-Demand Talent: Whereby the Company provide clients with access to top independent talent, including industry professionals for leadership roles and project-based initiatives.
  • Heidrick Consulting: Whereby the Company provides clients with the necessary facilities to develop their human capital.

The Company has a diverse client base, with clients generally falling into one of the following categories: Fortune 1000 companies; Major U.S. and non-U.S. companies; Middle market and emerging growth companies; Private equity firms; Governmental, higher education and not-for-profit organizations; and Other leading private and public entities.

This Security Issue came to our attention at the price of approximately 26.45 during late-June, with drafting of this Piece beginning relatively soon after. At the time it initially piqued our interest for several reasons, including:

  • The Company’s low P/E ratio
  • The Company’s low P/BV ratio
  • The Company’s ‘P/E * P/BV’ figure being less than 22.5
  • The Company’s current ratio
  • The Company’s lack of long-term debt
  • The Company’s cash dividend payments

Our Suspected Valuation at First Glance: Possibly ‘Gold’

 

Company Financials

All of the discussions below are based on the data presented in the Company’s SEC filings [3 – 23].

Table 2 – 1 below shows the Company’s annual net income and diluted earnings per share, alongside their three-year averages:

Table 2 – 2 below shows data extracted from HSII’s most recently published SEC filing (10-Q) [3] regarding their balance sheet:

Using the information presented in the table above (Table 2 – 2) we have constructed a new table below (Table 2 – 3), consisting of the discernible tangibles which we here find more useful. We have included the values of these assets as stated on the balance sheet, alongside three liquidation values i.e., their ‘realizable value’ as presented in ‘Security Analysis’ (pg. 560) [1]:

Table 2 – 4 below shows how many of the Company’s relative assets and liabilities (as presented in Table 2 – 3) are attributable to each of the Company’s common shares:

 

Initial Discussions Regarding the Company’s Financials

The Issue’s current ratio is 1.40 in accordance with Table 2 – 3, and Table 2 – 4 above, whilst the best, average and worst-case scenarios are 1.33, 1.27 and 1.24 respectively, all of which are below the minimum recommended figure of 1.5. The Issue passes the acid test in all four instances.

The Company has no long-term debt to have less than 110% of the net current asset value.

The Company has not demonstrated two losses over the last decade, but oddly enough in spite of this it is our opinion that the earnings have been fairly consistent. We believe the five- and 10-year averages can be taken as a reliable indication of the Issue’s previous earning power as opposed to the by-product(s) of a random assortment of numbers.

The Company has an uninterrupted annual dividends streak going back to 2007.

The Company’s most recent annual earnings were larger than those of six years prior; and looking at the three-year averages of our diluted EPS (beginning 2014) we can see that over the latest fiscal decade, the EPS have increase by approximately 297%.

The discernible tangible equity per share is -2.71 in accordance with Table 2 – 4 above; and we calculate the best, average, and worst-case scenarios to be -4.47, -5.99 and -6.70, respectively, all of which are negative and render the 120%-price-paid-to-DTE metric invalid in this instance.

 

The following points are for the more-involved investor(s)/shareholder(s); those who view common stock holdings as part-ownerships in an enterprise, irrespective of the short term public valuations, and not merely a tradable certificate “which can be sold in a matter of minutes” [2]. All of the points presented below have been factored into our valuation of this Security Issue here discussed.

Further Discussions Regarding the Company’s Financials

There were five main points we felt warranted further discussion or highlighting here as opposed to a single bullet point under the ‘Additional Observations Regarding the Company’s Filings’ subsection. Here we shall remind the reader that it is up to them and anyone else to whom it may concern, to come to their own conclusions after carefully considering the information they encounter during their own investigative works. We felt that the following five points were to be highlighted but of course some of you may naturally disagree and in your perhaps more, or even less informed opinion may have a different take on the information presented.

Acquisitions

It would be silly to not acknowledge the blatant acquisition trend showcased by this Company. It seems to be integral to their operations as a review of the 10-K Filings shows the habit has extended beyond the sampled five 10-K Filings. Here we’ll list the most recent ones we picked up:

  • “On February 29, 2016, the Company acquired substantially all of the assets of Decision Strategies International, Inc. (‘DSI’), a Pennsylvania-based business consulting firm and its wholly owned subsidiary, Decision Strategies International (UK) Limited” [13].
  • “On September 1, 2016 the Company acquired substantially all of the assets of Philosophy IB, LLP (‘Philosophy IB’), a New Jersey-based leadership, organization development and management consulting firm” [13].
  • “In January 2018, the Company acquired Amrop A/S (‘Amrop’), a Denmark-based provider of executive search services for 24.3 million Danish Kroner (equivalent to $3.9 million on the acquisition date) of initial consideration which was funded from existing cash” [11].
  • “In September 2019, the Company acquired 2GET Holdings Limited (‘2GET’), a Brazil-based provider of executive search services, and its wholly owned subsidiaries. Under the terms of the purchase agreement, the Company paid $5.2 million of initial consideration for substantially all of the outstanding equity of 2GET. The acquisition was funded with $4.1 million of existing cash at closing and $1.1 million of the Company’s common stock transferred in October 2019. The common stock transferred as consideration was reissued from the Company’s treasury stock” [11].
  • “On April 1, 2021, the Company acquired Business Talent Group, LLC (‘BTG’), a market-leader in sourcing high-end, on-demand independent talent. Under the terms of the merger agreement, the Company paid $32.6 million of initial consideration from existing cash for the outstanding equity of BTG” [5].
  • “On October 15, 2021, the Company acquired Heidrick & Struggles Finland OY (‘H&S Finland’), a Finland-based executive search firm, for initial consideration of $1.6 million with an anticipated future payment to the former owners in 2023, subject to the achievement of certain agreed upon financial performance and operational targets, and continued employment with the Company through the payment date” [5].
  • “On February 1, 2023, the Company acquired Atreus Group GmbH (‘Atreus’), a leading provider of executive interim management in Germany. The Company paid $33.4 million in the first quarter of 2023, with a subsequent estimated payment of between $9.0 million and $13.0 million to be paid in 2023 upon the completion of Atreus’ statutory audit for the year ended December 31, 2022, for all of the outstanding equity of Atreus” [3].
  • “On April 1, 2023, the Company acquired businessfourzero, a next generation consultancy specializing in developing and implementing purpose-driven change. In connection with the acquisition, the Company paid $9.5 million in the second quarter of 2023 with a subsequent estimated working capital settlement of approximately $2.0 million to be paid in the third quarter of 2023” [3].

The first question we’ll ask or at least encourage thought on, relates to HSII’s reliance on this strategy to grow. We don’t believe HSII aims to solely depend on this strategy as there are several excerpts that hint towards organic growth, like the following examples:

  • “The increase in Executive Search net revenue was the result of growth in the Americas, Europe, and Asia Pacific. Our acquisition of Amrop in January 2018 also contributed to the growth in Executive Search net revenue. The net impact of the new revenue recognition standard increased Executive Search net revenue by approximately $8.0 million” [13].
  • “Consolidated net revenue increased $381.4 million, or 61.4%, to $1.0 billion in 2021 from $621.6 million in 2020. Foreign exchange rates positively impacted results by $13.3 million, or 2.1%. Executive Search net revenue was $868.8 million in 2021, an increase of $303.6 million, or 53.7%, compared to 2020. The increase in Executive Search net revenue was primarily due to a 44.6% increase in the number of confirmed searches compared to the prior year. Heidrick Consulting net revenue increased $11.2 million, or 19.8%, to $67.6 million in 2021 from $56.4 million in 2020. The increase in Heidrick Consulting revenue was primarily due to a 48.1% increase in the number of consulting engagements compared to the prior year. The acquisition of On-Demand Talent in the second quarter of 2021 contributed $66.6 million to the increase in net revenue” [7].
  • “On-Demand Talent net revenue was $91.3 million in 2022, an increase of $24.7 million, or 37.1%, compared to 2021. The increase in On-Demand Talent revenue was primarily due an increase in the volume of on-demand projects and the timing of the acquisition of Business Talent Group, LLC (‘BTG’) in the prior year” [5].

What we did notice above however, was that equity dilution was involved in one of these considerations although the mentioned common stock were treasury shares and this does not seem to be a habit from reading the 10-Ks. Please see the noted example of this:

During the year ended December 31, 2019, we issued 38,553 shares of our common stock as partial consideration for our acquisition of 2GET Holdings Limited as described in Note 8, Acquisitions. The shares were issued in reliance on Section 4(a)(2) of the Securities Act of 1933 as a transaction not involving any public offering. [11]

It was not then clear how the rest of the acquisitions were financed, and it also seems alike a considerable proportion of the acquisition cost was for intangibles. There has been some equity dilution on account of this.

Heidrick Consulting Segment’s Profitability

It appears that not all of HSII’s segments are profitable, as the operating results show operating losses in all segments apart from the Executive Search segment. Please see Table 4 – 1 directly below for the operating profits of the current three segments over the last few years:

Clearly the Executive Search segment carries the entire business financially speaking, and considering the operating losses showcased by the Heidrick Consulting element, we’re genuinely not sure if this is supposed to be a profitable segment or if it serves some other function. In addition to this, if you look at annual reports before the latest segment reorganization, for say, the years 2016 and earlier you will see mentions of ‘Leadership Consulting’ and ‘Culture Shaping’ segments which also had a history of posting operating losses. Every year the Company lets it be known that every non-Executive-Search segments contribute less than 10% of the Business’ net revenue, so perhaps that is why these segments persist before they are either dropped or possibly restructured as they are not that material. No doubt it would be nice if all of the segments in questions were profitable, but perhaps the Company has a reason for this. If not however, we wonder how long they are prepared to let segments lose money before they are liquidated. These operating segments losing money, naturally leads into the subsection directly below.

Restructuring and Impairment Charges

The commentary here will be minimal but the sentiment is obvious. There is a restructuring habit and subsequent charges on the income statement, so much so that we segregated this matter so it is not just a bullet point beneath the ‘Additional Observations Regarding the Company’s Filings’. Since fiscal 2017 there has been a matter of delineated ‘Restructuring Charges’ existing on the income statement, and interestingly enough a look back at the previous reports reveals the line ‘Restructuring Charges’ can also be seen on the earlier 10-K Filings for fiscal years 2012 and earlier. From the most recent years however, please review the following descriptions provided by the Company:

  • “Restructuring charges During the fourth quarter, the Company announced a restructuring plan to reduce overall costs and improve efficiencies in its operations. As a result of this plan, the Company incurred approximately $15.7 million in restructuring charges for the year ended December 31, 2017. These charges include approximately $13.1 million in severance related charges, $2.3 million in professional fees and other expenses and $0.3 million in office related charges” [15].
  • “Restructuring charges. The Company incurred approximately $4.1 million in restructuring charges during the year ended December 31, 2019 in connection with initiatives to integrate the Company’s legacy Brazil operations into the 2GET business operation. The expenses are primarily employee-related including the elimination of duplicative positions in the Company’s legacy Brazil operations” [11].
  • “Restructuring charges. The Company incurred approximately $52.4 million in restructuring charges during the year ended December 31, 2020. The primary components of the restructuring include a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and the future elimination of certain deferred compensation programs. The Company incurred approximately $4.1 million in restructuring charges during the year ended December 31, 2019 in connection with initiatives to integrate the Company’s existing Brazil operations into the 2GET business operation. The expenses were primarily employee-related including the elimination of duplicative positions in the Company’s existing Brazil operations. The restructuring charges are recorded within Restructuring charges in the Consolidated Statements of Comprehensive Income (Loss)” [9].
  • “Restructuring charges. The Company incurred $3.8 million in restructuring charges in 2021. In 2020, the Company announced a restructuring plan (the ‘2020 Plan’) to optimize future growth and profitability. The primary components of the 2020 Plan included a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and the elimination of certain deferred compensation programs. The charges incurred in 2021 primarily relate to a reduction in the Company’s real estate footprint. The charges are recorded within Restructuring charges in the Condensed Consolidated Statements of Comprehensive Income for the year ended December 31, 2021. There were no restructuring charges or reversals in 2022” [5].

These charges eat into the income of course, and then we have other items like the following:

  • “In 2017, the Company determined that the goodwill and intangible asset within the Culture Shaping and Leadership Consulting reporting units were impaired, which resulted in impairment charges of $39.2 million and $11.6 million, respectively, to write off all the goodwill and intangible assets associated with each of the reporting units. The impairments were non-cash in nature and did not affect our current liquidity, cash flows, borrowing capability or operations, nor did they impact the debt covenants under our credit agreement. The impairment charges are recorded within Impairment charges in the Condensed Consolidated Statements of Comprehensive Income (Loss) for the twelve months ended December 31, 2017. In 2018, the Company completed the integration of its Leadership Consulting and Culture Shaping businesses into one combined service offering, Heidrick Consulting” [13].
  • “Impairment charges. In 2020, and as a direct result of the economic impact of COVID-19, the Company experienced a decline in demand for our executive search services and a lengthening of the executive search process due to a slow-down in client decision making, which had a material adverse impact on our results of operations. As a result, the Company identified a triggering event and performed an interim goodwill impairment evaluation. Based on the results of the of the impairment evaluation, the Company recorded an impairment charge of $24.5 million in Europe and $8.5 million in Asia Pacific to write-off all of the goodwill associated with each reporting unit” [9].

Altogether, it’s clear there is a trend here, one which whilst it may serve the Company better results in the long-run, currently erodes the earning power. How beneficial these restrictions for instance, end up being and whether they are value for money, is not something we are poised to know the answer to, but perhaps this can be queried with Management or deduced using some other methodology.

Effective Tax Rates

HSII seems to not have consistent tax rates, a matter potentially speaking to the reliability of the apparent earning potential in any Security Issue. We’ve constructed Table 4 – 2 below to showcase our calculated effective tax rates for this HSII:

The effective tax rates of the Company have also recently been notably higher than the effective tax rates in most years where it is applicable (and where it has been a positive value), so all-in-all things are not seemingly the optimal, although considering the amount of jurisdictions this Business appears to operate within, the elevated effective tax rates are perhaps not too much of a surprise. Concerning carryforwards etc., the Company had the following to say:

At December 31, 2022, the Company had a net operating loss carryforward of $103.4 million related to its foreign tax filings. Of the $103.4 million net operating loss carryforward, $64.0 million is subject to a valuation allowance. Depending on the tax rules of the tax jurisdictions, the losses can be carried forward for periods ranging from five years to indefinitely. The Company also has a foreign tax credit carryforward of $5.5 million subject to a valuation allowance of $5.5 million. [5]

Altogether though, the reason for the lack of consistency with the tax rates could be queried with Management.

Depreciation and Amortization

It is not clear where the depreciation and amortization charges are being accounted for on the consolidated income statement as they are not delineated, and the nearest mention we get concerning the situation of these charges on the income statement is outlined as follows:

As a result of the change in the useful life, approximately $0.9 million and $4.2 million of depreciation expense was accelerated and recorded in Restructuring charges in the Consolidated Statements of Comprehensive Income (Loss) and Depreciation and amortization in the Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020, respectively. [7]

Outside of these instances it is not all too clear where they have been accounted for, and judging by the consolidated statements of cash flows, the depreciation and amortization charges are the same order of magnitude as the net income, meaning if the latter has not been accounted for the former is overstated. We believe these charges should be delineated and perhaps their location(s) on the income statement could be queried with Management.

Concerning the depreciation methodology itself, the fixed assets are depreciated using the straight-line method over the estimated useful life of the asset(s) which are as follows: ‘office furniture, fixtures and equipment’ is 5-10 years; ‘computer equipment and software’ has been 3-7 years since the 2016 annual report, prior to which it was 3-8 years; and ‘leasehold improvements’ are depreciated over the lesser of the lease term or life of the asset improvement, which typically range from 3-10 years. As always we’d prefer exact values over ranges.

Additional Observations Regarding the Company’s Filings

Points we feel may be considered neither positive nor negative

  1. Concerning the economic downturn of 2008-2009, the Business lost money in 2009 but not in 2008 [25].
  2. The Company may have recently completed a business cycle expansion.
  3. HSII is overly conservatively capitalized so would not make for an interesting speculative purchase in this regard.
  4. We would call this a medium sized company in terms of consolidated financials.
  5. We do not here suspect any corporate pyramiding.
  6. The basis of presentation says “the consolidated financial statements include Heidrick & Struggles International, Inc. and its wholly owned subsidiaries and have been prepared using accounting principles generally accepted in the United States of America (‘GAAP’)” [5, 7, 9, 11], and we have no reason to believe this has changed in the latest 10-Q Filing.
  7. The Company very recently repurchased some common stock for the first time in a number of years and it seems they maintain the stock on the balance sheet as treasury shares. The intentions with which we are not completely sure of, although based on what we have seen earlier it may be to possibly use as a consideration for business acquisitions.
  8. The comprehensive income is typically approximately the same as the net income.
  9. There are no inventories for us to calculate on the valuation of as per the usual way of doing things here.
  10. The full scope of the ‘other current assets’ and the ‘other non-current assets’ was not elaborated on in the latest 10-K Filing so we have not been able to fully account for these in our valuation(s). We admit some explanation was provided however but full elucidation (to satisfy our requirements, at least) was not given.
  11. There are no concerning payments coming up in the next year or so for anybody to be concerned about.
  12. There has been no worrying and/or notable decline in the value of the current or total assets on the latest balance sheet.
  13. From the sampled 10-K Filings we reviewed, the Company was an “accelerated filer” in Rule 12b-2 of the Exchange Act up until the 2021 10-K Filing when it became a “large accelerated filer” in Rule 12b-2 of the Exchange Act. Then the following year (fiscal 2022), the Company was again an “accelerated filer” in Rule 12b-2 of the Exchange Act.
  14. ‘Revenue Recognition’ was a critical audit matter in the last 10-K Filing and has been for the last three 10-K Filings.

Points we feel may be considered negative

  1. We would not say the operations of the Company are easy for the layman to comprehend.
  2. The only consistent estimation was for the following year’s first quarterly net revenue, and in most instances the actual value sits outside the range of the predicted values.
  3. There is a high institutional ownership percentage of the common shares outstanding (61.61% at the time of this Piece’s posting [26]).
  4. The Company has no history of stock splits [27], but there has been some stock dilution as mentioned earlier e.g., “during the year ended December 31, 2019, we issued 38,553 shares of our common stock as partial consideration for our acquisition of 2GET Holdings Limited as described in Note 8, Acquisitions. The shares were issued in reliance on Section 4(a)(2) of the Securities Act of 1933 as a transaction not involving any public offering” [11].
  5. A large number of shares have been authorized allowing for much possible equity dilution in the future.
  6. The Company paid cash dividends to shareholders during the losses of fiscal years 2020 and 2017.
  7. HSII lets it be known “the Company has contingent liabilities from various pending claims and litigation matters arising in the ordinary course of the Company’s business, some of which involve claims for damages that are substantial in amount” [5, 7, 9, 11, 13, 15, 17, 19, 21, 23, 24, 25], i.e., they are often involved in legal proceedings.
  8. A few unfavourable Director and NEO matters:
    1. The Company makes use of non-GAAP metrics when determining NEO compensation values including TSR.
    2. A Director or two has been a director at a lot of companies, leading us to wonder about loyalty and priorities.
    3. There was the following error – “These 401(k) employer matching contributions for 2018 and 2017 were inadvertently omitted from the Summary Compensation Table amounts disclosed for such prior fiscal years but have been revised (along with the corresponding total compensation amounts) in this 2019 Summary Compensation Table. For Mr. Harris, 2018 also includes $86,478 related to relocation expenses in connection with his joining the Company” [10].
    4. The Company has paid for some interesting matters like “business club fees, parking, an annual physical examination and financial planning services” [12], all whilst not entirely being profitable.

Points we feel may be considered positive

  1. The Business has been around for a number of decades, thus has stood the test of time.
  2. The Company has no dependency on a small number of customers or suppliers.
  3. There have been more year-over-year increases in cash and cash equivalents than there have been decreases over the latest fiscal decade, and these have not been owed to loan proceeds.
  4. There is currently no long-term debt on the balance sheet.
  5. There are constantly no related party transactions which require disclosure.

Possible Questions for HSII’s Approximate 46 Stockholders to Consider, Investigate and/or Raise with Management

  1. Is the Executive Search segment meant to be the only profitable segment? If so, what is the purpose in the other segments?
  2. How much money does the Company believe has been saved following constant restructuring efforts?
  3. Over the latest decade or so, the percentage of the Company’s net revenue generated outside of the Unites States has decreased. Is this intentional and if not, why do Management believe this is?
  4. Going forward can the Company clearly state how the business acquisitions are financed i.e., cash on hand, loan proceeds, debt issuance, issuance/selling of equity/common shares etc.?
  5. Recently a ‘research and development’ item has appeared on the income statement. What is this referring to exactly? Why did this not exist before?
  6. What are the ‘reimbursed expenses’ item(s) on the income statements?
  7. What are the ‘cost of services’ item(s) on the income statement and why did it recently appear?
  8. How did the Company finance the cash dividends to shareholders during the losses of fiscal 2020 and 2017? Why were dividends not merely suspended this year?
  9. Going forward can a full compressive breakdown of all ‘other’ assets (current and/or non-current) be provided in all 10-K and 10-Q Filings?
  10. Why did the Company recently remove the table showcasing their ‘Contractual Obligations’?
  11. How did the Company finance the cash dividends paid to shareholders paid during years of a financial loss?
  12. Going forward can the depreciation and amortization charges be clearly delineated on the income statement?
  13. Can exact estimated useful lives of the depreciated assets be provided as opposed to ranges?
  14. Why do most of the Company’s leases not provide an implicit interest rate?
  15. Why have such a large number of shares been authorized? Can any reassurance be provided that these will not eventually dilute Shareholder equity in the near-term future?
  16. What are the Company’s intentions with the treasury shares?
  17. What does the Company have to say about the lack of consistently concerning their effective tax rates?
  18. Was any Director or EO a company founder, co-founder or descendant of such?
  19. Why did the Human Resources and Compensation Committee (“HRCC”) switch independent compensation consultants?
  20. Why are bonuses being paid when an entire section of the business is repeatedly proving unprofitable?
  21. Why has the Company recently fiddled with how it reports in Rule 12b-2 of the Exchange Act?
  22. In 2015, the Company increased the stock ownership guidelines for their CEO from three times base salary to five times base salary. Why?
  23. For the sake of more varied and inclusive perspectives, has the Company considered expanding the size of their Board of Directors?
  24. The 2020 DEF 14A Form said the following – “These 401(k) employer matching contributions for 2018 and 2017 were inadvertently omitted from the Summary Compensation Table amounts disclosed for such prior fiscal years but have been revised (along with the corresponding total compensation amounts) in this 2019 Summary Compensation Table. For Mr. Harris, 2018 also includes $86,478 related to relocation expenses in connection with his joining the Company” [10]. What actions have been taken to ensure this error does not happen again?

 

Valuations

The price of this Security Issue at the time of this Piece’s publication is 25.26. Using our most recent three-year average of the diluted EPS (1.80) as opposed to the most recent EPS figure (3.75) increased the P/E ratio from 6.74 to 14.00; and using our discernible tangible equity value per share (-2.71) as opposed to the stated book value per share (20.21, in accordance with Table 2 – 2) has rendered the P/BV ratio negative. With that in mind and considering current federal interest rates (5.50% at the time of writing), the current price does not appear to offer a sufficient margin of safety as per Benjamin Graham’s concept i.e., “over a ten-year period the typical excess of stock earning power over bond interest may aggregate 50% of the price paid” [2]. We should now also remind the reader of some of Graham’s other thoughts regarding the ‘margin of safety’ principle, viz.:

Diversification is an established tenet of conservative investment. By accepting it so universally, investors are really demonstrating their acceptance of the margin-of-safety principle, to which diversification is the companion…It is our argument that a sufficiently low price can turn a security of mediocre quality into a sound investment opportunity provided that the buyer is informed and experienced and that he practices adequate diversification. [2]

On account of a negative P/BV value, our P2/BV*E upper-limit check is not feasible.

Finally, we can make the following conclusions regarding the original points that initially piqued our interest in the Issue, considering both our adjustments and the Company’s financial changes since then:

  • The Company’s low P/E ratio – still valid
  • The Company’s low P/BV ratio – no longer valid
  • The Company’s ‘P/E * P/BV’ figure being less than 22.5 – no longer valid
  • The Company’s current ratio – no longer valid
  • The Company’s lack of long-term debt – still valid
  • The Company’s cash dividend payments – still somewhat valid

Whether the current price is reflective of the Company’s future, present and past, in the reader’s opinion is for the reader to decide based upon their own research, however in our opinion this Security Issue appears currently overvalued on account of its current and previous quantitative showing.

Our Valuation: Rubber

This Issue did not perform well in our ‘Initial Discussions Regarding the Company’s Financials’ section, especially considering that there is no positive DTE. At this point in time, there is currently no pricing point at which we would assign this Issue a valuation of ‘Gold’ or higher.

At this point in time and all matters here considered, this is not stock pick we would likely follow nor likely add to a stock portfolio even at a seemingly reasonable price.

 

References

  1. Graham, B., Dodd, D.L., Security Analysis, (6th edition), (Warren, B.E., Klarman, S.A., Grant, J., Laderman, J.M., Lowenstein, R., Marks, H.S., Merkin, J.E., Berkowitz, B., Greenberg, G.H., Greenwald, B., Abrams, D), McGraw-Hill Education, 2008 – {ISBN 10: 0071592539/ISBN 13: 9780071592536 & ISBN-13: 978-0071592536/ISBN-10: 0071592539}
  2. Graham, B., The Intelligent Investor, (Revised Subsequent Edition), (Warren, B.E., Zweig, J), Harper Business, 2006 – {ISBN-10: 9780060555665 / ISBN-13: 978-0060555665}
  3. HSII’s 2nd 2023 quarterly fiscal report (10-Q) – https://www.sec.gov/Archives/edgar/data/1066605/000106660523000068/hsii-20230630.htm
  4. HSII’s 2023 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1066605/000119312523101649/d331085ddef14a.htm
  5. HSII’s 2022 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1066605/000106660523000014/hsii-20221231.htm
  6. HSII’s 2022 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1066605/000119312522106308/d304780ddef14a.htm
  7. HSII’s 2021 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1066605/000106660522000008/hsii-20211231.htm
  8. HSII’s 2021 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1066605/000119312521119590/d43713ddef14a.htm
  9. HSII’s 2020 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1066605/000106660521000014/hsii-20201231.htm
  10. HSII’s 2020 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1066605/000119312520113463/d864470ddef14a.htm
  11. HSII’s 2019 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1066605/000106660520000005/hsii-123119x10k.htm
  12. HSII’s 2019 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1066605/000119312519113190/d672855ddef14a.htm
  13. HSII’s 2018 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1066605/000106660519000003/hsii-123118x10k.htm
  14. HSII’s 2018 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1066605/000119312518128740/d496539ddef14a.htm
  15. HSII’s 2017 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1066605/000106660518000003/hsii-123117x10k.htm
  16. HSII’s 2017 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1066605/000119312517138258/d338780ddef14a.htm
  17. HSII’s 2016 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1066605/000106660517000007/hsii-123116x10k.htm
  18. HSII’s 2016 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1066605/000119312516551573/d117036ddef14a.htm
  19. HSII’s 2015 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1066605/000162828016012581/hsii-123115x10k.htm
  20. HSII’s 2015 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1066605/000119312515140887/d879344ddef14a.htm
  21. HSII’s 2014 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1066605/000119312515087394/d841065d10k.htm
  22. HSII’s 2014 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1066605/000119312514148801/d662087ddef14a.htm
  23. HSII’s 2013 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1066605/000119312514098019/d656838d10k.htm
  24. HSII’s 2012 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1066605/000119312513109907/d444079d10k.htm
  25. HSII’s 2011 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1066605/000119312512115953/d279506d10k.htm
  26. https://www.gurufocus.com/stock/HSII/ownership
  27. https://www.stocksplithistory.com/?symbol=hsii

 

Throughout this Piece, any mention of a given year’s annual report refers to the 10-K Filing/Annual Report which represents the financial year ended that same year, typically in the calendar month of December, i.e., any mention of the ‘2019 10-K Filing’ or ‘2019 Annual Report’ etc. refers to the 10-K Filing representing the fiscal year ended December 2019. The Filings are usually published a couple of months later, the following calendar year.

Throughout this Piece, any mention of a given year’s Proxy Statement refers to the DEF 14A Form/Proxy Statement which accompanied the most recent 10-K Filing, i.e., any mention of the ‘2020 Proxy Statement’ refers to the DEF 14A Form which accompanied the 2019 10-K Filing; usually published not too soon after the 10-K Filing (typically a couple of calendar month(s) relative to the 10-K Filing’s filing date).

 

Disclaimers and Disclosures – https://wp.me/PcbS4Q-V