We now have a uniformly speculative thought: take stock of a trader of computer equipment and services PC Connection (Nasdaq: CNXN), to get income in a positive situation for the company.
Growth potential and duration : twelve percent for 12 months.
Why stocks can go up: as the situation for the company is not the most bad.
How do we act: we take at the moment 44,35 $.
Our reflections are based on the analysis of the company's business and the personal experience of our financiers, but remember: does not mean, that the investment idea will work like this, how are we waiting. Everything, what are we writing, - these are predictions and guesses, but not a call to action. To hope for our reflections or not - it's up to you.
And what about the author's predictions
Analysis, for example this and this, indicate that, that the accuracy of the prophecies of motivated prices is not great. And this is acceptable: there are always a lot of surprises on the stock exchange and clear forecasts are rarely realized. If the state of affairs was negotiable, then funds based on computer algorithms would perform better than people, but no matter how annoying it may sound, they work worse.
Therefore, we do not try to build difficult models.. The efficiency forecast in the article is the author's expectations. We indicate this forecast as a guideline: as with investment in general, readers decide for themselves, you should trust the creator and focus on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
PC Connection is a provider of IT services and products, it is a reseller and service center. According to the company report, its revenue is divided into the following product and service categories:
- Laptops and mobile solutions - thirty-two percent.
- Stationary computers - ten percent.
- PO - eleven percent.
- Servers and storage - eight percent.
- Services, which are related to the operation of websites, - eight percent.
- Monitors and sound - eight percent.
- Devices - fourteen percent.
- Other devices / services - nine percent.
According to the structure of clients, the company's revenue is divided in the following way:
- Small and medium-sized companies - 37,3 %. The operating margin for this customer category is 3,34 % from proceeds.
- Large Fortune 1000 Organizations - 43,1 %. Operating margin - 5,32 % from proceeds.
- Government and educational organizations - 19,6 %. Operating margin negative - -0.54 % from proceeds.
In fact, the company makes all realizations in the USA, and only two percent of sales come from unspecified other states.
Arguments in favor of the company
Time. In the UiPath review, I talked in detail, that now companies in the United States are motivated to pay the most attention to technology in the estimates for the renewal of fixed assets. Attention is paid to both "hardware", and software, to compensate for the damage to business from the lack and high cost of labor. PC Connection will also drop here, since the bulk of buyers is characterized by a low level of expertise. In such matters, the help of intermediaries is extremely necessary for them - especially when the issue needs to be resolved urgently..
The shortage of semiconductors in the world and the resulting lack of technology can also spur the company's business - that part of it, which is related to the resale of devices. As practice shows, resellers' expertise and connections allow customers to find something, what do they need, in extreme scarcity, but at a fairly high price - to the benefit of resellers.
The cost. According to company estimates, the size of its target market - about $ 200 billion per year, and the share of PC Connection is 1.26%. With a capitalization of 1.16 billion, the company stands as 0,58% from the target market, therefore it can be considered underestimated. The P / E of the company is not very large - 22,87. So there is good potential for speculative growth..
Diversification. According to the company report, no client gives her more than 5% of the proceeds. It's good, because it strengthens her negotiating position.
Purchase opportunity. The company has two major competitors: huge CDW Corporation and Insight Enterprises. Although it carries certain risks, but taking into account the positive aspects of this, the likelihood of buying PC Connection increases.
What can get in the way
Competitors. The big competitors mentioned above can strain themselves and start squeezing the company out of the market., to then buy it much cheaper than the current price.
Mediation. The specificity of the company is its main problem. Here I would say about the low final margin of PC Connection - only 2% of revenue, but the main difficulty of the company's resale business is, that many of the company's suppliers are competitors, in particular Apple, Dell, HP и Lenovo. If any of them decide, that PC Connection is no longer needed as a sales channel, it can be very bad for her business. This threat is more theoretical., resellers like PC Connection are still an important sales channel, but it's worth keeping in mind.
Who would have thought, but a pandemic is not good. Corona crisis severely spoiled sales companies. So you should be prepared for, that the negative development of the situation with new strains will affect reporting. And the lower the US will be in the Normal Index, so much the worse for PC Connection.
The target audience. Small and medium-sized businesses account for a significant share of the company's sales. At the moment, the number of small businesses opened in the United States by 44,2% below, than before the pandemic. Actually, this is the reason for the decline in the company's sales following the results of the coronavirus crisis. Probably, the worst is over and the opening of the US economy will naturally lead to an increase in PC Connection sales. But you should still be prepared for unpleasant surprises..
What is the bottom line
We take shares now by 44,35 $. It would be perfectly reasonable to expect them to return to price. 50 $ within the next 12 months.