PeopleIn is one of our worst performing picks (sorry if anyone followed me into this). However, it is starting to find some love! In fact it’s found nearly 40% more love since the 7 June with the share price climbing from a low of 70 cps to a high of $1.00 in one month! Apart from some insider buying I can’t find any news to explain the change in sentiment.

Perpetual started buying in May-June, followed by non-executive director Anthony Peake who bought an $80,000 parcel on-market on 19 June.

Source: Simply Wall Street

I hate it when you get the feeling that you’re the last to know something!

This is one business where I have not averaged down. I am trying to stick to a policy of only adding businesses with ROE of 20% or higher. The theory being, it should lift the overall quality of our portfolio over time. It’s not as if there’s a shortage of options when it comes to businesses with ROE over 20%, and some of these are very reasonably priced.

The tricky part is finding a businesses that can sustain or increase ROE over time. The worst thing you can do is to buy a business with a high but declining ROE (like PeopleIn). Of course you don’t always know this at the time you buy it. Sustainability or incremental improvement to ROE over time is the key to a business re-rating to a higher PE, or vice versa!

It turns out PeopleIn’s ROE was not sustainable. It fell from 17% to 15% to 12% last year, and forward ROE based on analyst forecasts is c. 11%.

Source: Commsec

According to McNiven’s valuation PeopleIn could still return 18% at the current share price of 96 cps, but I’m still not tempted to buy it because of the deteriorating ROE. Nor do I want to sell it, because it looks too cheap on the metrics, both forward and backwards! The PE is under 10, and the PEG ratio is 0.4! I might consider selling if I can find a business with a high ROE and at a very reasonable price, then swap it out. For now it’s a watch and hold for me!

Held IRL (2%)

@Ipsum hopefully the director buying might also provide some insight into the expected impacts to PeopleIN’s businesses model due to the proposed ‘Same Job Same Pay’ legislation still under negotiation with the Australian Government and Industry groups. My gut feeling is that the share price decline has been an overreaction and PPE is now well undervalued.

Disc: Held IRL (2.3%)