Wayside Technology reports disappointing quarter

Posted by Tim

October 26, 2007

Wayside Technology (WSTG: 8.09 +0.09 +1.13%) released their 3rd quarter earnings yesterday, and sales and profits were down from 2006. Revenue decreased 14% and net income per share fell a penny to $.18. Year to date revenues are up 5.6% and per share earnings up 20%. Of course, the stock is down 12%.

The decrease in revenues is due to the company not chasing low margin VMware sales. These sales are a third of the companies revenue, but with the growth of VMware, others are selling the product at much lower margins than Wayside will accept. WSTG actually improved profit margin during the quarter.

Wayside’s problem, as I see it, they are selling a value added approach in a commodity market, with competitors who will sell at very slim margins. The conference call sounds positive that they can build value in their sales, but the results have been disappointing for the last couple of quarters. This is a very small company with large competitors. Can they remain profitable and build revenues at the same time? That is the $2 question.

I own a small position in WSTG and plan on keeping it for at least another quarter. I would like to see an upward trend in revenues by next quarter. In the mean time they declared another 15 cent dividend, giving a 4%+ yield on the stock.

Wayside Technology is a component of my hypothetical 20 Stock Portfolio.