PC Connection Stock Forecast - Financhill

PC Connection Stock Forecast

PC Connection Stock Forecast: It’s just short of impossible to operate a business without technology in today’s digital world. The efficiency gained from advanced applications is critical for keeping up with the competition, and consumers shy away from patronizing companies unable to interact electronically.

Amazon [NASDAQ: AMZN] sets the pace for US commerce, and it has a substantial global presence. An astonishing 95 million people are Prime members, and they have become accustomed to fast, free fulfillment of their orders. That’s a high bar for other retail establishments to match, and the only chance of doing so is by embracing technological solutions.

From a marketing and service perspective, the message is quite similar. Business-to-Business and Business-to-Consumer companies must maximize their digital marketing to create brand awareness, or they risk losing market share to competitors who do.

In addition, consumers expect to communicate with companies through their preferred channel, which for most involves email and social media. Those who can’t get their problems resolved through digital means tend to consider alternative companies for their next purchase.

The bottom line is that having the right hardware and software is no longer negotiable in any industry, and businesses must invest in technology to generate revenue. This investment isn’t a one-time expense, as software and security upgrades are on-going, and new tools are made available every week.

Where PC Connection Seizes Opportunity

Even the highest-quality machines don’t last forever, and most experts advise that laptops be replaced every three-to-five years. Any longer, and they are unable to operate the latest applications. Worse still, they are vulnerable to cyberattacks, because their security is outdated.

Companies that focus on supporting the business world’s constantly-evolving technology needs are indispensable in today’s technology-driven environment. They create customized hardware and software solutions for each company’s unique needs, and they supply the products that keep businesses connected with employees and customers.

PC Connection, which operates under the name Connection, is a major player in this specialized industry, and investors want to know, can Connection continue to build its client base and grow revenue? In other words, is PC Connection stock a buy?

PC Connection Has A Diversified Client Base

PC Connection [NASDAQ: CNXN] is a top provider of custom-configured computer systems. It is part of the Fortune 1000, generating revenues of $2.7 billion.

The company is based in New Hampshire, and most of its business comes from US clients, however Connection’s subsidiary, GlobalServe, does a brisk international business as well.

Connection has a central distribution center in Ohio, and from there, it is generally able to deliver complete systems to clients within 24 hours.

It deals in more than 300,000 individual products developed by more than 1,600 manufacturers, which ensures it can meet even the most unusual needs of client businesses.

Connection offers expert technical support through its network of offices strategically placed around the country, and it is a leader in supplying hardware, software, and support in education, business, and government settings.

Aside from its ability to configure and deliver custom technology solutions in a matter of hours, Connection differentiates itself from other IT procurement companies through its ability to solve most complex IT issues.

Connection holds more than 2,500 technical certifications, demonstrating its deep skill in all things IT. That’s a must when working with government agencies, who often house complex and highly-confidential material.

All of this sounds good, but is Connections generating value for shareholders? What do the numbers look like?

Is PC Connection Stock a Buy?

PC Connection reported its third quarter results on October 30, 2019, for the quarter ending September 30th. Across the board, the company saw substantial gains, which resulted in an impressive boost to stock prices.

Year-over-year, net sales went up by 10.8 percent, from third quarter 2018’s $658.5 million to a total of $729.4 million.

Net income increased an astonishing 72.5 percent year-over-year, totaling $23.7 million as compared to $13.8 million in the third quarter of 2018. That breaks down to $0.90 per diluted share, versus third quarter 2018’s $0.51 per diluted share.

This impressed investors and analysts, because it was so far above forecast. The consensus was that earnings per share would come in at $0.57, and that net sales would  be just $688.20 million.

The figures for the nine-month period ending September 30, 2019, weren’t quite as impressive, but they did show a strong growth trend. Net sales for that period went from $2.0 billion in 2018 to $2.1 billion in 2019 – an increase of 5.7 percent.

Net income for the same period increased by 38.9 percent year-over-year, from $43.3 million to $60.1 million. That breaks down to $2.27 per share compared to 2018’s $1.61 per share.

Third quarter results illustrated some interesting trends in the larger industry. Notebook and mobility sales went up by 20 percent year-over-year, and these products generated 30 percent of the net sales for the quarter. On the other hand, accessory sales went down a bit, accounting for 12 percent of net sales versus 13 percent in the third quarter of 2018.

Desktop sales, which many assumed would go down, actually went up by 33 percent year-over-year. They brought in 13 percent of third quarter 2019’s net sales, as compared to 10 percent of net sales in the third quarter of 2018. Finally, software sales went up by 8 percent year-over-year, generating 11 percent of the third quarter’s net sales.

Of course, the question is, can Connection continue to deliver strong results that exceed analysts’ expectations?

What are the Risks of Buying PC Connection?

Few analysts have ventured to make predictions on Connection’s future, and those that have are sending mixed messages. The current consensus is that the stock is a buy, however the 12-month price target is roughly 10 percent lower than today’s stock price.

The issue appears to be that there is very little information available about the company’s strategy, and analysts aren’t sure exactly how Connection was able to produce such unexpectedly strong results in the third quarter. Without details, they aren’t willing to risk predicting whether the rate of growth is sustainable.

For investors, that leaves something of a mystery. The company appears to be focused on expanding its product line and improving its customer service capabilities, both of which could lead to continued increases in revenue.

Better still, Connection is adapting to changes in technology, including a move to cloud-based services.

Connection faces formidable competition from industry giants who, interestingly, are also the company’s suppliers. Examples include Dell, Apple, Lenovo, and HP. However, it is unlikely that new competitors will appear in the marketplace, as there are high barriers to entry in this business.

PC Connection Stock Forecast Summary

The bottom line is that purchasing PC Connection stock brings the same reasonable risk as any other investment, but it is certainly not much more risky. The upside potential outweighs the likelihood of shares losing value over the long-term, making PC Connection stock a buy.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.