Labor Smart Inc (LTNC)

[sobe4life]

Oh I really love the gross profit hype. How about the bottom line?

Hmmm....

I guess if I were ignorant to how start-up company's operated, I might not understand why increases in gross profit margins (GPM's) are so exciting to see in a company like Labor SMART.

There is also a significant difference between facts and hype. And, the facts on Labor SMART do not lie.

When a company like Labor SMART first starts operations, it is a given that expenses will far outpace operating income. However, whether through trial and error, a successful executon of a business model, streamlining or consolidation, at some point in time there should be an increase in the gross profit margins in a company. This is a healthy tell tale sign that the company is obtaining enough critical mass to either streamline or outpace expenses while still in their growth phase.

That is exactly what I am seeing with LTNC with the increase of GPM's from 15% to 23%. That is a very significant move within a 12 month period of time.

Another exciting clue that the company is successfully executing their business model is when they have turned the corner of profitability with positive EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization).

With the growth Labor Smart is showing AND the increases in GPM's AND the positive EBITDA the company is now finally showing, it is only a matter of time before they start showing positive net income. This will ultimately come from continued growth and obtaining more critical mass.

Now that the company has disclosed its intent to be more aggressive with acquisitions versus its previous organic growth, I anticipate net income to come much sooner than later.

Although it is only a hypothesis, I expect net income to start dropping to the bottom line once they are in the 45-60 branch count range.

With organic growth that should come sometime next year. However, with the company in an aggressive acquisition mode, it could come much sooner.