The Good: Better efficiencies producing higher sales. The Bad: Heavy competition. The Beautiful: Powerful direct sales effort with strong earnings growth projected.
P/E: 12
PSR: 0.17
ROE: 10%
Debt/Eq: 0.03
Beta: 0.42
February 14, 2008 - PC Connection, Inc. (PCCC-NASDAQ) is just a "click" away. A leading direct marketer of computer products in the US, the company sells hardware, software, networking devices, and peripherals. PC Connection offers more than 100,000 items from Apple, Hewlett-Packard, IBM, and Microsoft, and delivers almost anywhere in the US within 24 hours. The firm targets small and mid-sized businesses, government agencies, and educational organizations using catalogs, telemarketing, and the Internet. It also sells to medium-to-large corporate accounts.
Who would have thought there's still money in computers. Evidently founders Patricia Gallup (chairman and owner of almost 35% of the stock) and David Hall (vice chairman and 33% owner) did. Even with competitors like Dell, Best Buy, Office Depot and local mom and pop computer stores, PC Connection is making the connection with businesses and governmental agencies.
To the tune of $1.78 billion in sales in 2007 and profits of $.85, with expectations of 95 cents this year. In the third quarter of last year, sales were up in all divisions, showing demand for upgrades and new IT solutions. The large corporate sales were focused on fewer accounts but larger ones. While the consumer group slowed, the small to medium size business division wrote more tickets, reporting sales of $264 million for the fourth quarter, up 14% from the same quarter the previous year. Higher education organizations bought more as well as government agencies, especially several federal contracts. Government sales surged 25% to $85 million in the fourth quarter compared to the same quarter in 2006. In 2007, earnings were up 50%, well above 56 cents in 2006.
Investors always like the phrase "better efficiency". It applies here. Revenue per employee is one metric of that, and PCCC increased revenues per employee by 10% over the last year. Better staff training is paying off as well as a focus on the best customers. While overall prices have been relatively flat, new interest in lap tops and their premium pricing help offset price declines in other areas.
Net profit margin was slim at 1.3% in 2007 (but up from .9% in 2006). With competitors always looming, PCCC will have a challenge to maintain its position. However, it does have the personal connection that is so important in any sales effort. That may be its most valuable competitive advantage. Having that may also make it a prime takeover candidate.
Other numbers: This is a small cap company with a market cap of only $275 million with 26.8 million shares outstanding. Current assets are twice current liabilities. There is no dividend. Return on equity is 10%. Growth in earnings is forecast by analysts to be 21% a year, on average, for the next 5 years with revenues increasing by 5% a year, on average, in the same time period.
This is still a small company, but in 2000, the stock hit $70 a share. It drooped to $3.70 by 2002, and the ride from there hasn't been straight up. As with most small companies, expect volatility if you decide to own this one. But before you make that decision, be sure to do a lot more homework.
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