After hitting the highest level of $14.78 per share in the mid of the last year, StarTek (NASDAQ:SRT) shares plunged in the second half, driven by lower than expected financial results. The $166 million company has a 52-week trading range of $7.75 to $14.78. STR’s stock is currently trading around $10.30 per share, up 4.31% since the start of this year, thanks to the broader rally in tech stocks.
StarTek is a provider of business process outsourcing services, including customer care, inbound sales, sales support, accounts receivable management, complex order processing, up-sell, cross-sell and technical and product support.
The company’s revenue and earnings plummeted in the latest quarter, due to its strategy of replacing low margin businesses with the higher margin businesses.
“We made the proactive long-term decision to accelerate our high-grading efforts in Q3 and removed approximately $10 million of lower than acceptable margin business,” said Chad Carlson, CEO of STARTEK.
The company believes that they will add nearly 70% of the new business revenue stream by end of the year. StarTek also seems optimistic over their future fundamentals, thanks to $104 million of new contracts for its high margin businesses. The strong growth in its backlog was supported by the sharp momentum in e-commerce retail and healthcare businesses.
Its free cash flows are also declining with the decline in revenue and earnings. However, its cash balance increased to $1.3 million at the end of the third quarter, compared to $1 million in the same period last year.
Restructuring the entire business model isn’t an easy task. However, the company expects to complete the restructuring process by the end of the first quarter. Therefore, the company’s financial numbers are likely to remain under pressure in the short-term.
On the other hand, StarTek stock looks undervalued trading around 3.5 times to book value and 0.5 times to sales, compared to the industry average of 5.6 and 2.6 times, respectively. Overall, the company appears in a solid position to support the stock price. However, investors would like to see the real impact of its restructuring actions on the financial numbers.
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