Is Harte Hanks Stock A Buy?

Is Harte Hanks Stock A Buy? There was a time when marketing was a one-way interaction. Businesses could control the conversation, and they had a foolproof solution for gaining a competitive edge: lowering prices.

In most cases, the company that could undersell competitors the longest won the battle for market share. Factors like quality of service and corporate responsibility weren’t always the most important factors.

For example, in 1992, airlines entered a price war that led to a significant increase in demand for air travel – but staggering industry-wide losses weakened some carriers to the point of no return. In 1999, long-distance telephone services Sprint, AT&T, and MCI dropped their rates repeatedly in an effort to poach customers on the basis of price alone.

It’s a pattern that played out again and again towards the end of the 20th century. However, the digital transformation of business – e-commerce and social media in particular – changed the game once and for all. Harte Hanks tried to keep up with the changing times, but it struggled. Now the company is staging a comeback.

How Has Marketing Changed In The 21st Century?

It’s no longer possible to compete on price alone. Consumers can access the global marketplace with a couple of clicks.

More importantly, companies no longer control the conversation. Personal networks have grown from an immediate circle of in-person friends, family, and co-workers to an international platform with virtually unlimited connections.

Aside from the changes brought about by an increasingly online world, consumer priorities have evolved. They are less focused on price and more interested in community responsibility, engagement, and their overall experience with the businesses they patronize.

Marketing strategies have evolved alongside the digital transformation, and businesses know that they must put resources into optimizing the customer experience if they want to outshine the competition.

That’s where Harte Hanks (HHS) comes in. But is Harte Hanks stock a buy after its 2020 delisting and a 52-week low of $4.31 per share?

Harte Hanks: A Penny Stock with Pedigree?

Today, Massachusetts-based Harte Hanks is a leading Customer Care, Fulfillment and Logistics, and Marketing Services firm with expertise in building relationships that reach, influence, and motivate customers. However, it hasn’t always been in this field. Harte Hanks was founded in 1923 as a newspaper company, and it stayed in that industry for more than 50 years.

In 1962, Harte Hanks expanded into television and radio, and it held its IPO in March 1972. Public trading lasted about 12 years, at which point its leaders decided to go private.

A second IPO took place in 1993, coinciding with the business decision to exit newspapers, television, radio, and other media for good. Harte Hanks decided to expand its marketing division and focus on that industry exclusively – a bold choice at a time when the marketing industry was in a state of flux.

At first, the new Harte Hanks saw impressive success. Stock prices increased from around $55 per share in 1993 to almost $255 per share in 1998. By 2005, the stock was close to $300 per share, but the bottom fell out when the 2008-2009 financial crisis set off a worldwide economic disaster.

Harte Hanks never truly recovered from the recession, and by 2017, the stock traded below $20 per share. In November 2019, it was below $3 per share. That dropped to just over a dollar per share when the market crashed in March 2020, and Harte Hanks was finally delisted.

Miraculously, Harte Hanks was still able to squeeze out a profit, and by 2021, something had changed. After years of negative growth, the company turned things around and regained its place on the Nasdaq. Is that a sign that Harte Hanks stock will recover? Is Harte Hanks stock a buy?

Harte Hanks Revenue

It’s true that the numbers for the past five years aren’t pretty. Harte Hanks’ revenue went down consistently from 2017 to 2020:

• 2017 Revenue – $383.9 million
• 2017 Revenue Growth Year-Over-Year – (-5.1) percent
• 2018 Revenue – $284.6 million
• 2018 Revenue Growth Year-Over-Year – (-25.9) percent
• 2019 Revenue – $217.6 million
• 2019 Revenue Growth Year-Over-Year – (-23.6) percent
• 2020 Revenue – $176.9 million
• 2020 Revenue Growth Year-Over-Year – (-18.7) percent

Then, in 2021, the numbers finally started to go up. For the first time in a long time, there was significant revenue growth:

• 2021 Revenue – $194.6 million
• 2021 Revenue Growth Year-Over-Year – 10 percent

What changed, and is 2021 an anomaly, or is it the start of a long-term growth trend?

Harte Hanks Growth

Harte Hanks has a turnaround story that is all the more compelling as evidence mounts of its success. The company went through a complete restructure that reduced assets and improved its balance sheet.

CEO Brian Linscott said that so far, 2022 results have demonstrated that Harte Hanks’ increasing profitability is sustainable, though investors won’t have the opportunity to evaluate that independently until the company releases its earnings results.

Linscott indicated that Harte Hanks’ 2022 focus will be on expanding gross and operating margins and generating free cash flow, as well as optimizing new revenue opportunities.

Of course, these objectives are in addition to maintaining and growing 2021’s advances in profitability, liquidity, and customer loyalty. Among other big names, Harte Hanks has been the choice of companies like Ford, FedEx, Sony, IBM, Blue Cross/Blue Shield, Bank of America, and Unilever.

29.2% Upside

As of early May 2022, Harte Hanks has a market cap of $51.67 million, and it is trading at a price-to-earnings ratio of 4.21. Based on a discounted cash flow analysis, analysts forecast that Harte Hanks has a 29.2 percent upside.

Revenues may reach $203.4 million for 2022 and – all things equal – $211.2 for 2023.

The current earnings-per-share forecast is $0.84 for 2022 and $0.91 for 2023.

Risks

While it appears that the company is on its way up, Harte Hanks stock has its share of risks.

First, as a small-cap stock, it is more likely to see volatility. Second, the marketing industry generally ebbs and flows with the economy as a whole. Given the current risk of recession, Harte Hanks may find that its recent growth is stifled by larger economic conditions.

Finally, Harte Hanks stock faces more risk than peers of similar size. The company is still proving itself while competitors like Hero Digital, Merkle, and MDC Partners are on solid ground with a history of success over time.

Is Harte Hanks Stock A Buy?

There is a lot to like about Harte Hanks’ new direction, and it seems that there is more growth in the company’s future. However, one year of growth after more than a decade of losses doesn’t necessarily mean a successful turnaround.

Investors willing to accept higher risks in pursuit of higher potential rewards should consider Harte Hanks stock a buy. Those who prefer a little more certainty would be better served by watching, waiting, and reconsidering after second-quarter financial results are in – an event that has historically occurred in mid-August.

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