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Ashley Services Group Ltd leaps 18.3% – Is it a buy?

What: Integrated training, recruitment and labour hire company Ashley Services Group Ltd (ASX: ASH) has released a set of full year results which have sent the share price flying up 18.3% to 55 cents in late afternoon trade on Wednesday.

Ashley Services has a very disappointing short history as a listed stock.

The company floated via initial public offering (IPO) just one year ago and since then the stock has lost over 70% of its value.

In some respects, Ashley Services’ story has been similar to peer Vocation Ltd (ASX: VET), which touched a high of $3.40 in the past 12 months but whose share price is currently languishing at just 9 cents.

So What: Today’s results have gone some way to restoring investor confidence in the company with the group reporting a pro forma revenue of $305.8 million and pro forma net profit after tax, but before amortisation of $13.7 million.

Net cash stood at $12.4 million, pro forma return on equity was 13.3% and a final dividend of 4.1 cents per share (cps) has been declared which takes the full year dividend payout to 6.4 cps.

Now What: Ashley Services’ earnings have come in significantly below what was forecast in the group’s IPO prospectus. This prospectus could now potentially become the centre of a possible court case with litigation funder IMF Bentham Ltd (ASX: IMF) recently announcing that it is proposing to fund the claims of certain Ashley shareholders against Ashley.

For most investors who purchased shares in the array of recent educational and vocational training IPOs in the hope of achieving returns like those of growth stock Navitas Limited (ASX: NVT) they have so far been disappointed.

Despite the recent past performance across much of this sector, for investors who are comfortable investing in a contrarian manner, this out-of-favour sector could in fact currently be offering significant upside potential in certain instances.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.