Mastech Digital, Inc.

MHH Details

Mastech Digital, Inc. (NYSE: MHH) operates as an information technology (IT) company that specializes in digital transformation. Its operating segments are 1) Data and Analytics Services, which provides data management, data engineering, customer experience consulting, and analytics services, and 2) IT Staffing Services. As of November 16, 2021, the company's market capitalization stood at USD 222.47 million.

Q3FY21 Results:

• Growth in Topline: The company reported a decrease of 25.64% in revenue to USD 59.53 million in Q3FY21 (ended September 30, 2021) compared to USD 47.38 million in Q3FY20.
• Growth in Profitability: Net income for Q3FY21 grew 13.61% YoY and stood at USD 3.41 million compared to USD 3.0 million in Q3FY20.
• Cash and Debt Position: As of September 30, 2021, the company's cash balance stood at USD 5.45 million, with a total debt of USD 14.04 million.

Key Risks:

• Customer Concentration Risk: MHH's top ten customers accounted for ~49% of its total revenue in Q3FY21. The loss of any of these key customers could hurt the company's financials.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

MHH Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

MHH's stock price has increased 21.56% in the past three months and is currently leaning towards the higher end of its 52-week range of USD 14.00 to USD 20.60. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 58.91. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 16.82.

Considering the significant uptick in the stock price in the past three months and other technical indicators, we believe the decent business fundamentals are already priced in at the current trading levels. Hence, we recommend a "Sell" rating on the stock at the closing price of USD 19.45, down 0.61% as of November 16, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.