The Great Recession ended more than seven years ago, but many employers remain wary of hiring permanent workers. Their timidity is a boon to California-based staffing agency On Assignment (NYSE: ASGN). The stock, which is up more than 16% in the five months since we added it to the Growth Stock Strategist portfolio, returned an annualized 29.9% the past five years.

The catalyst was huge demand for On Assignment’s temporary and temp-to-hire employees, the type of workers gun-shy employers increasingly seek in order to keep a lid on costs yet still get the job done. As the chart shows, the demand for temps has spiked sharply since the recession.

And why not? For a fee, employers get willing workers without any up-front commitment, while the staffing agency assumes all the administrative burden. Employers that eventually plan to hire get a long look at job prospects before making a decision.

Expert Workforce

Specialization is On Assignment’s path to profits, which more than doubled the past three years to $98 million. Rather than supplying a broad range of workers, the firm looks to fill highly skilled professional roles in areas such as information technology, digital marketing, finance and government. Supplying highly skilled workers means the agency can charge a premium for temp help.

Often, demand for these temps is as much about a need for expertise as it is about employers’ reluctance to hire permanently. IT, in particular, evolves so rapidly that using temp labor makes it easier for employers to bring in cutting-edge talent as needed.

On Assignment supplies the IT sector through the staffing company’s Apex segment, which accounts for nearly three-quarters of revenue. The segment has three divisions: Apex Systems, Lab Support (a small division specializing in skilled laboratory personnel) and Creative Circle.

Apex Systems was long the segment’s main source of growth, providing temps with high-tech expertise in areas like IT infrastructure, application development and healthcare IT. However, Creative Circle, which On Assignment bought just over a year ago for $570 million, adds a second growth powerhouse. As one of North America’s largest staffing agencies specializing in digital and interactive marketing and advertising, Creative Circle immediately made On Assignment a force in an industry that’s expanding 20% annually.

The year before the acquisition (2014), Creative Circle had $226 million of revenue and a 26% three-year compound annual growth rate, more than twice the industry average. Plus, as On Assignment management pointed out in a recent conference call, Creative Circle’s workers are hot commodities, with 60% of online job postings requiring digital expertise.

On Assignment’s other main business segment, Oxford, accounts for just over a quarter of revenue and has three divisions: Oxford Global Resources, CyberCoders and Life Sciences Europe.

Whereas the latter is a European-themed version of the Apex segment’s small lab division, there’s big growth going on at the other two divisions. Oxford Global profits from the demand for temps with hard-to-find healthcare-related expertise, such as installing specialized hardware for medical device manufacturers and complying with Food and Drug Administration regulations.

CyberCoders is particularly lucrative, with revenue rising about 25% a year. The main draw for employers is recruitment services in skilled areas like finance and engineering. Proprietary software that matches employers and job prospects helps make CyberCoders proficient in arranging permanent hires—an especially profitable area of the staffing business, as fees are usually a large percentage of the employee’s starting salary.

With the skilled-temps business booming, On Assignment’s revenue grew almost 19% annually since 2012 (to $2.1 billion today), while yearly profits compounded at more than a 31% pace.

The company also has industry-leading profit margins, including a 7.4% operating margin versus the 4.1% industry average. Annual free cash flow of $111 million is more than a fourfold gain in only a few years. (Free cash flow is the amount of cash from business activities minus any investments funneled back into the business.)

Strategic Purchases

As the Creative Circle deal shows, On Assignment makes smart acquisitions. It bought Apex Systems four years ago to better compete in the red-hot IT market and has since boosted the division’s revenue and profits by cross-selling through other divisions.

Five years ago, On Assignment bought Valesta, a small Belgian staffing firm known for its clinical research, biotechnology and medical device experts. CyberCoders was a 2013 acquisition, as was physician-staffing specialist Whitaker Medical. The latter was combined with Vista, a similar agency On Assignment acquired nearly a decade ago.

Last year, On Assignment sold Vista for $123 million, three times the original purchase price. Proceeds from the sale went toward newer acquisitions, investments in existing divisions, share repurchases and debt repayment.

Despite frequent acquisitions, On Assignment’s debt is about 90% of stockholders’ equity, not much greater than the 70% industry average. The company has a BB Standard & Poor’s credit rating, which is speculative but pretty common among small caps and far from signaling default. S&P rates On Assignment’s credit outlook as stable because of factors like steady progress in reducing debt and better-than-expected performance from Creative Circle.

Though the stock has been on fire, shares still only sell for about 12 times next year’s projected profits. And, at just under $41 a share, they still have about 18% upside to our $48 price target.