Dice Holdings: Strong Growth Potential

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Dice Holdings (NYSE: DHX) has been operating in the staffing and sourcing industry for 22 years. It is a leading provider of specialized websites for employers, recruiters and professional communities with the aim to help clients source and hire qualified professionals.

Dice Holdings has superior profit margins compared to both its peers and the general market. The company offers its services as highly specialized and operates mainly in the technology industry (75% of sales). The company's online portfolio is well-diversified both regionally and industry-wise, with its sales coming from multiple markets in North America, Europe, Australia, Asia, and the Middle East. 

Social recruiting exposure

LinkedIn (NYSE: LNKD) is the industry leader in online and social recruiting, squeezing its main competitor, Monster.com, out of business. However, both LinkedIn and Monster Worldwide (NYSE: MWW) operate with different business models from Dice Holdings.

Dice Holdings' operating history has enabled it to build brand recognition and large communities of loyal users, which has given it a distinct competitive advantage. It further enhances its competitive advantage by building a large knowledge base through original and community-generated content targeted to the needs of each employee group. This unique, deeply relevant content allows it to charge premium rates for its services and helps its clients target and reach concentrated audiences.

On the contrary, both Monster and LinkedIn have a broad, unified approach to all industries and segments, offering the same services through a single online/social channel. As opposed to the unfocused approach of its competitors, Dice Holdings uses a strategy of deep targeting. It offers industry-specific services and portals, which enable it to better serve each of its unique niches. The January launch of Dice Holdings' Open Web service provided an effective social media tool for recruiters, increasing the company's added value and further deepening its differentiation and strengthening its competitive position.

LinkedIn trades at a sky-high 684 P/E and a 109.73 forward P/E. It offers additional services where it is not competing with Dice Holdings, so revenue where it directly competes with Dice Holdings is not material. That provides Dice Holdings breathing room to keep expanding its niche.

The dominant position of LinkedIn is well documented. Not many companies are able to raise prices in today's challenging economic environment. When competitors are increasing prices, it is good news for Dice Holdings. 

Monster reported disappointing second quarter results, and the market was not kind. The stock crashed by 30% within two trading days, and now trades at just 62% of Monster's book value and a 10 P/E. The company has its hands full with LinkedIn and is fighting for its existence. It is currently exploring all options, including a potential sale of the business and deep restructuring measures.

The financials

Dice Holdings achieved EPS growth of 19% annually during the past five years, and is expected to grow 14.8% annually over the next five years. 18% debt-to-equity is of no concern, and other financial metrics are sound. Monster and LinkedIn have much lower profit margins and are more expensive based on other fundamentals.

New CEO and valuation

Adding uncertainty, Dice Holdings recently announced changes to its executive team, with Michael Durney, current CFO, succeeding Scot Melland as President and CEO, effective September 30, 2013. Furthermore, Dice reported mediocre second quarter results as it beat EPS expectations but missed on the top-line and also lowered its full 2013 guidance.

The company trades at a very reasonable trailing P/E of 15.35 and a forward P/E of 14.68. Many feel it is very attractively priced, given its projected growth rate of almost 15% over the next five years. This makes Dice Holdings an attractive investment to investors who are confident in its future growth. As reported on July 31, 2013, analysts indeed do have confidence, as Dice Holdings topped their list of stocks with very strong stock buyback activity, surpassing 5% of its outstanding shares in the trailing twelve month period.

Conclusion

Dice Holdings may enjoy several positive catalysts, mainly the gradually improving U.S. economy and international markets. Also, unhappy workers will increase turnover once the job market loosens and more of them decide to change employers. Perhaps it's time you took a look at Dice Holdings for yourself.

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Martin Vlcek has no position in any stocks mentioned. The Motley Fool recommends LinkedIn. The Motley Fool owns shares of LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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