Stock Review: Wayside Technology Group
With the recent hot IPO of VMware (VMW: 21.90 +0.05 +0.23%), this is a good time to take a look at Wayside Technology Group (WSTG: 6.77 -0.2199 -3.15%). Way side is a very small cap ($66 million market value) software reseller and distributor. They strive to be a value added vendor for higher margins than the competition.
They were VMware’s first distributor and the VMware product accounts for about 35-40% of revenue (36% last quarter).
The company has had good growth so far this year revenue up 33% and income up 68% in the 1st quarter and up 6% and 23% respectively in the 2nd quarter. The stock took a big hit when 2nd quarter revenues came in flat. Share prices dropped from over $18 to around $14 where it is trading today. Current PE is 16.
Here are what I see as the positives for Wayside Technology Group:
- Net profit margin increasing to 3% from 2.1%. Earnings continue to grow faster than revenues.
- Major vendor for VMware, a current high growth product.
- $20 million in cash for acquisitions or stock buy back
- Current dividend rate of4.2%
- Emphasis on value-added, higher margin business
Here are some negatives:
- Competitive, low margin business
- Revenues flattening as competitors cut margins to grow revenues
- Dang, this is a small cap company!
I believe this company has a positive future and the growth of VMware should give a boost to future revenues and earnings. Did I mention the 4.2% dividend and $20 million in cash? The company has an enterprise value (market cap minus cash) of $45 million and will earn over $4 million this year. With a maintenance of earnings growth the stock could double in the next year.
I am adding this company to my 20 Stock Portfolio (number 3). This portfolio is a list of companies I have reviewed and I believe have excellent profit potential.
I do not currently own a position in WSTG.
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Comments
Wayside Technology Group is not a healthy company at all; I can testify as I worked there in IT. They don’t have a real understanding of people’s value. They underpay their employees, and make them work overtime, long hours. I was there for 9 months, worked many Saturday-Sundays. Not only I was not being compensated for this, but also threatened (By email) by the CEO that the site ‘d better be live on time. After working there so hard, as a dedicated employee, I was let go.
Also, they are in the software reselling business, and have slow marging, which means, they must low-pay their employees to survive.
Finally, if you study their stock, it has no volume at all…
The only reason why they are in business, is due to the well managed “Lifeboat Group”. I do respect this group, but have no respect for their CEO as well as their IT group.
It is a mismanaged company. They have no disaster recovery site…
Best Regards…
Georges
Thanks for the WSTG update. I’ve owned it for 3 years. It’s priced like a traditional catalog reseller, but has the growth of a tech stock. So the market has always mispriced it until its growth made share price growth utterly unavoidable. And having a microcap this size pay a 4.2% dividend is almost unheard of. Fair value may be 20x 2009 earnings: about 24-25. Using 20% and 25% earnings growth for 2-3 years and 5% thereafter, my DCF calculator gives values of 22.82, 24.63, 25.82 and 29.06. But we won’t see these prices until WSTG delivers the earnings. The market has never priced WSTG for the growth and yield it delivers, except for a brief period in 2005 when it hit 16.