Good morning fellow investors! If it feels a little unusual to get your SmallCap Network newsletter in the morning, you’re not crazy - it is unusual. There’s a very good reason we’re sending this edition before the market opens rather than after the close today, however... we want to give our loyal readers early notice of a company that’s going to become a Featured Stock at the site this evening. It’s a timely idea too, in the shadow of Monday’s news of six U.S. companies becoming victims of Chinese cyberspying. Just to set the stage, imagine a company on pace to grow annual revenue from a few million bucks to $300 million in just three years. Seriously. It’s possible when the right group of people see the right opportunity in the right industry and have the know-how to make it happen. That company is Staffing 360 Solutions (STAF), and the industry is (as you might have guessed) the staffing sector. We wouldn't be shocked if this stock was trading at about three times its current value within the foreseeable future. The time for investors to act may be now, however, before anybody else hears about this potentially up-and-coming company. As trading veterans can attest, being one of the first to learn of an opportunity is half the battle. Opportunity Galore I'll be the first to admit I wasn't aware of just how big the staffing industry is. Globally, businesses spend $280 billion on staffing and placement services every year. To put that in perspective, the World Health Organization says the pharmaceutical market is worth $300 billion per year, which is one of the biggest industries in the world! Point being, there’s a ton of money up for grabs within the staffing arena. Unlike the pharmaceutical, food and technology industries though, the staffing industry is highly fragmented. There are roughly 70,000 staffing agencies worldwide. The biggest ten of those firms collectively win only about a third of the industry’s total business, while the other 69,990 firms split the remaining $200 billion or so worth of annual revenue. Even within the United States, the biggest 50 of the nation’s 32,000 staffing firms only split 40% of the $220 billion spent each year on temporary U.S. workers. That’s inefficient and ineffective. For an enterprising company willing to take action, however, it’s an opportunity to improve the situation and make an awful lot of money in the process. Fragmentation is only one aspect of the opportunity though. Outsourced staffing is bigger than it’s ever been. A full 90% of U.S. businesses use temporary staffing services, and this isn't likely to change anytime soon. In fact, temporary staffing is apt to continue expanding its role in the world of modern business, where flexibility and outsourced expertise is preferable. How fast will it grow? The staffing industry is projected to grow faster - and add more jobs - than any other industry is for the next decade, an idea supported by trends already in motion. The largest chunk of this enormous growth is being fueled by demand for technology workers and cybersecurity specialists in particular. Just to paint the picture with some numbers, in 2012 there were a jaw-dropping 49,000 reported cyber-attacks in the United States, up 13% from 2011’s total. The pace is picking up steam too. IT security firm Prolexic said U.S. cyber-attacks grew more than 30% last year and were responsible for nearly 20% of data center outages [just one of many ways cyber-attacks can cause harm] in the U.S. in 2013. With the average cost of an outage topping $600,000 and the total price tag for cybercrime standing at a whopping $1 trillion, the need for qualified help is clear. Underscoring the $1 trillion price tag is yesterday’s announcement from the Department of Justice. You probably already saw it, but if not, yesterday the Department of Justice accused five members of China’s People’s Liberation Army of stealing trade secrets from six U.S. companies, including Westinghouse and Alcoa. Politics aside, someone hacking an American company's network isn't the crux of the issue. Of concern is the fact that something preventable could be allowed to happen in the first place. This is one more reason why the pros believe the world is going to need another 330,000 cybersecurity specialists in the coming years ahead. The Bureau of Labor Statistics has published comparable numbers, expecting a 53% increase in the number of information security professionals needed through 2018. That pace of job growth is three times faster than the job growth predicted for other technology arenas and about five times the expected job-growth rate of all other industries combined. Yes, there’s most definitely a need. Staffing 360 Solutions Has a Plan And how is Staffing 360 Solutions going to reward investors by capitalizing on the opportunity? Well, it already has but it’s hardly done with the effort. The plan here is a straight-forward one - STAF is going to acquire staffing agencies, integrate them into its existing business and expand the size and scale of all of its acquisitions, thus making them more profitable as a whole. In other words, as synergies are realized, the value of the whole becomes greater than the sum of its parts. Thing is, the STAF growth train is just now picking up steam. Within the past twelve months Staffing 360 Solutions has made four acquisitions which puts the company on track to generate $100 million in annual revenue. I don’t doubt the projection either. If you look closely at the company’s quarterly numbers, you'll see a big jump in the top line last quarter. For the quarter ending in November, STAF saw just a little less than $2 million in revenue, driven almost entirely from its initial/inaugural purchase of staffing firm Cyber 360 Solutions in May of last year. For the quarter ending in February of this year though, Staffing 360 Solutions posted sales of $16.9 million. The big jump coincides with the acquisition of Initio in January and the purchase of Control Solutions in November. There was one more acquisition in the meantime - Poolia UK, in March. Between these four deals and a few more on the radar, Staffing 360 Solutions expects to see annualized revenue reach $100 million in 2014. Now that’s exciting, but it’s still not the most exciting part of the STAF story. Acquiring a company is one thing. Acquiring a company on great terms is another. Staffing 360 Solutions has been adding companies on great terms for everyone… shareholders, the parent company, as well as its target companies. The typical offer STAF has made to an acquisition target is about ⅓ cash, ⅓ stock (of STAF), and ⅓ short-term notes or an “earn-out” based on the company’s continued performance. It’s the last payment mode that really puts everyone on the same page. Note payments are only made as long as the acquired company continues to produce results. Yet, that same arrangement also allows the target company to financially benefit from wider margins created once the union is completed. It really is a win-win scenario… for everybody. A little cash, a little stock, and a little incentive can go a long way in the investment community because it’s about as fair - and economically sound - as it gets. No wonder companies are willing to join up, especially knowing they'll be allowed to continue running their business as they have been. Here’s where things get more than a little urgent for those who haven’t heard of the stock before today. We already knew Staffing 360 Solutions was in acquisition-mode. As of today though, its growth plans and follow-through are completely inarguable. Per this morning’s press release, STAF has acquired another staffing agency, PeopleSERVE. PeopleSERVE is an IT staffing firm working with government, commercial and educational organizations throughout the greater Boston area. It’s the real deal too. As the PR explained, PeopleSERVE and CEO Linda Moraski have both been recognized for their work and success by numerous organizations, including being awarded the 2014 Enterprising Women of the Year Award, named to the list of 5,000 Fastest Growing Private Companies in America by Inc. Magazine and recognized as a Top 100 Women Owned Business by Diversity Business. In other words, it’s a nice addition and another feather in the cap for STAF. The acquisition of PeopleSERVE in the shadow of three more recent acquisitions, however, leaves one wondering just how much more accretive growth is the company planning? Answer: Enough to add about fifteen more high-quality staffing firms within three years, which in turn could mean $300 million in annual revenue for Staffing 360 Solutions. Not bad for a $59 million organization. Together, these 20 or so companies can bring size and scale to the table, making STAF one of the proverbial “big boys” in the staffing industry and the IT staffing industry in particular. Investors willing to take a shot today are going to be getting in right at the advent of the growth effort... right in the potential sweet spot of the company’s timeline. The STAF Bottom Line Lots of industry growth on the horizon? Check. An internal-growth plan actually making sense for everybody involved? Check. A small stock yet to be discovered by the masses? Check. STAF is one of the most exciting opportunities we've seen in a while and I've got a feeling we’re going to see the pace of acquisitions heat up over the next couple of years. You ladies and gents know how this works too - the more progressive the news, the more the market pays attention and responds in a bullish way. As for a potential valuation, we weren't kidding you above when it was suggested STAF could triple in value within the foreseeable future. To get some idea of how far Staffing 360 Solutions shares could climb, one only has to look at the established publicly-traded names in the staffing industry. These are Kelly Services (KELYA), Manpower (MAN), and Robert Half (RHI). Their stocks are valued at an average of about 13.7 times EBITDA, or an average of 0.6 times revenue. On a sales basis, this could mean Staffing 360 Solutions grows from the current market cap of $59 million to a market cap somewhere in the vicinity of $180 million if it reaches $300 million in sales. Or, presuming STAF achieves the industry-norm EBITDA rate of 5.4% of the targeted $300 million in revenue and investors price it at 13.7 times that figure, you’re talking about a company value of around $225 million. On a per-share basis, this translates into a potential move from the current value of $1.93 to somewhere between $3.75 and $7.00 if the company can inflate the top line to the projected $300 million. Oh, it won’t get there tomorrow. As was noted above, STAF is looking for an annual top line of $300 million within three years by making acquisitions between now and then. The market’s likely to reward the company along the way as it guns for the $300 million goal, however, and it may well start doling out those rewards on the heels of today’s news. The usual caveats still apply with Staffing 360 Solutions - never put more into a speculative small cap idea than you can afford to risk and keep close tabs on the ticker. After all, it’s still a small cap, and still capable of doing anything with or without notice. On the other hand, consider everything else we've said here. STAF is a stock we’re excited about for several reasons and since it’s our goal to bring you small stocks for big returns on both a short-term and/or long-term basis, we couldn't wait to get STAF in front of everyone ASAP because this is one idea we believe potentially provides a tremendous opportunity. This is why we’re sending you today’s newsletter this morning before we make it a Featured Stock at smallcapnetwork.com today after the close. You've got today if you want to get in before the official unveiling kicks off tomorrow.