A baby being thrown out with the AI bathwater?

As a bargain hunter, I often find myself drawn to companies that have been heavily sold off, on the assumption that Mr Market may be acting irrationally and has overshot to the downside.

HiTech Group Australia Limited may be one such case. In August 2025, shares in the company were trading at around $1.93. As of 24 April 2026, they are closer to $1.02. The question is whether this sell-off is justified, or whether it represents an opportunity at current prices.

HiTech Group provides recruitment services for permanent and contract staff within the information and communications technology (ICT) sector across both public and private markets in Australia. It services telecommunications, finance, healthcare, consulting, IT and fast-moving consumer goods, as well as federal and state government agencies. The company works with numerous government departments and is a member of the Defence Industry Security Program, reflecting long-standing relationships across parts of the public sector. These relationships suggest a degree of operational resilience and may create barriers to entry for competitors.

There is generally repeat demand for these services, which can provide relatively predictable revenue at low operating cost and with strong cash conversion. The company itself is physically small, with around 16–17 employees, yet it has generated more than $60 million in annual revenue, highlighting significant operating leverage and the potential for strong margins.

As a business operating within digital transformation, cybersecurity and government outsourcing, many of its placements are linked to ongoing programs rather than one-off engagements. This positioning may give the company some ability to pivot if demand softens in any one area. It has also been a dividend-paying micro-cap, with yields that can appear attractive relative to its size.

Of course, the company is exposed to government policy on spending. If there are cuts within an agency, contractors are often among the first to be reduced, and given that a meaningful portion of HiTech Group’s revenue is tied to government work, this is a real risk. Growth may also be constrained by the nature of the model, which requires more placements and deeper customer relationships rather than benefiting from the exponential scalability seen in software businesses. As a recruitment firm, it operates in a competitive environment where differentiation is limited and execution, relationships and staff retention are critical.

As previously mentioned, this is a micro-cap with relatively low trading volumes. While this may limit interest from large institutional investors, it also contributes to illiquidity and potential share price volatility.

The elephant in the room is artificial intelligence, and it is reasonable to suspect that concerns around AI disrupting elements of IT labour contracting may be weighing on sentiment. In reality, the impact of AI may be more nuanced. Government agencies are likely to require support in adopting and integrating AI into their processes in a secure and efficient manner, along with ongoing support post-implementation. This could drive demand for data engineers, AI and machine learning specialists, cybersecurity experts and cloud architects, roles that HiTech is already involved in supplying.

In the short to medium term, the adoption of AI may increase demand for IT contractors, particularly in defence, intelligence and large-scale digital transformation programs. The more likely structural shift is not necessarily a reduction in demand, but a change in its composition, with fewer lower-skilled roles and greater demand for highly skilled, higher-cost specialists. This could ultimately benefit a company like HiTech, provided it can attract and place this level of talent. Government hiring processes also tend to be bureaucratic, security-sensitive and relationship-driven, which may offer some insulation from rapid disruption, as the sector is traditionally a slower adopter of new technologies.

The question then becomes whether HiTech is now an attractively cheap company. It is a business that has generated approximately $67 million in revenue, with the market currently assigning it a relatively modest valuation. The price-to-earnings ratio appears to sit in the low single digits (around ~7x depending on the share price), reflecting subdued market expectations. On some measures, it screens reasonably well against frameworks such as those popularised by Joel Greenblatt, with solid earnings relative to its capital base. Discounted cash flow estimates might suggest a higher fair value—potentially closer to $1.70 per share—although such valuations are highly sensitive to underlying assumptions.

Longer term, growth within the existing business model may be modest, but the company could benefit from the continued adoption of AI over the coming years if it is able to evolve and support this transition within government agencies.