3SOF

David, nice comeback in SYX, applause.

fyi:

SYX: Short Interest UP 17.9% to 5.5M in Jun 2007
Thursday , June 21, 2007 16:37ET

According to new short interest data from NYSE, short interest for Systemax Inc (NYSE: SYX) INCREASED 17.9% to 5,494,083 shares for the month ended mid-June, 2007.

SYMBOL    MAY            JUNE          CHANGE       %CHANGE  DAYS/COVER
--------   -------------   -------------   -------------  ------------  ----------
SYX   4,659,157       5,494,083        +834,926    +17.92%          12

Based on SYX's 20-day average daily share volume of 484,080, it would require approximately 12 day(s) of buying to cover this short interest.

&

BUYINS.NET: NCI, SYX, BPA, ALLT, PPBL, VAPH Have Been On BUYINS.NET Naked Short List For 13 Consecutive Trading Days
Tuesday , June 26, 2007 09:38ET
......
Systemax Inc. (NYSE: SYX) and its subsidiaries operate as a direct marketer of brand name and private label products. It operates in three segments: Technology Products, Industrial Products, and Hosted Software. The Technology Products segment sells computers, computer supplies, and consumer electronics in North America and Europe. Its products include personal computers (PCs), servers, notebook computers, laser printer toner and ink jet printer cartridges, recordable disks, magnetic tape cartridges, hard disks, CD-ROM and digital versatile disc (DVD) drives, printers, scanners, memory upgrades, data communication and networking equipment, monitors, digital cameras, plasma and liquid crystal display TVs, MP3 and DVD players, PDA's, and packaged software. This segment also assembles its PCs and sells under the trademarks Systemax and Ultra, as well as markets and sells computers manufactured by other companies. The Industrial Products segment sells various material handling equipment, storage equipment, and consumable industrial items in North America. Its products include wire and metal shelving, bins, and lockers; hand carts, forklifts, and hand trucks; ladders, furniture, small office machines, and related supplies; and first aid items, safety items, protective clothing, and OSHA compliance items. The Hosted Software segment markets PCS ProfitCenter Software, a Web-based application, which delivers on-demand service over the Internet. Its product helps companies automate and manage the customer life-cycle across multiple sales channels. The company's customers include large, mid-sized, and small businesses; educational and government entities; and individual consumers. It markets its products through multiple channels, utilizing relationship marketers, e-commerce Web sites, mailed catalogues, and retail outlet stores. Systemax was founded in 1995 and is headquartered in Port Washington, New York. With 35.98 million shares outstanding and 4.66 million shares declared short as of May 2007, the failure to deliver in shares of SYX has not been resolved and a buy-in is imminent.

Thanks La-Onda, I expect SYX to breakout above $22 and that will make the shorts buy to cover on the way up.

I went to see if StockLemon (now Citron Research) has been on to SYX's back lately, but no, the latest article on Systemax is dated January 17, 2007. Hi guess he was convinced by the company's reply to his "on rebate" concerns. I'll look into it more deeply for the next updates.

But he's really on to HSOA and now HOKU. I'm going to read HOKU's story, I'm sure it is interesting, since that stock has been up so damn much lately (and I missed it  ).

I need to derive my valuation model for SYX. I'm sure it will be easy to justify a much higher share price. Just a bit of a margin expansion and that would change the company's valuation completely. As for the downside, imagining SYX would report a quarterly loss or whatever, I don't think there's a big downside because of the very low price to sales ratio.

I'll do this for the next update, I don't know how I let this happen (since I had several days to write this update) but I'm late for lunch and need to send the newsletter.

I'll keep on holding SYX.

For the next update I'll start by SYX, because that way I'll make a better update. Consumer electronics seem to in high demand (or soon to be), because that's the second best performing industry in the DJ industries, look here:

10 Best Performing Industries

SYX is a $769 M market cap company with 2006 sales of $2.345 B. However, net profit margin in 2006 was just 1.92%. That's why the company had an EPS of "just" $1.22 and therefore trades at
17.5 times earnings.

But don't you find it strange, that it is so hard for an electronic products retailer to have a decent net profit margin, of say, 5%? It looks like such a great business, using common sense. Competition killed the net profit margin. But, there aren't more competitors entering the market and some of them are leaving or about to leave it, like for example www.ecost.com from PFSW. I think www.ecost.com won't survive, it isn't competitive enough (I thought differently in the past - but the company is losing too much money and it is running out of cash now).

If SYX could have a 5% net profit margin, it would then earn something like $125 M a year (considering just a bit of revenue growth) and be a $2.5 B business, that is, a $70 stock.

Impossible? No, I guess it is quite achievable.

I'm still in love with www.tigerdirect.com, by the way.

I'll keep on holding SYX.

I've derived the valuation model for SYX and was surprised by the attractiveness of the results:



As for the 4 variables of the model:

1 - Dilution Factor

I inserted 1.01 (it means 1% average annual increase in the share count), because that has been the average increase since 2002, as you can check here: Systemax Inc.: Financial Statement

2 - Revenue CAGR

1.11 is my estimate, that is, 11% revenue CAGR for the next three years. That has been the revenue CAGR since 2002, as you can see on the same link: Systemax Inc.: Financial Statement

However, in Q1 2007 revenue growth, from Q1 2006 was 17.42%, so maybe revenue growth is accelerating on a long term basis and actual results may be better than my estimate.

3 - Net Profit Margin

This is my riskiest bet, because I expect net profit margin to rise from 1.92% in 2006 to 5% in 2009. I think it is time for the return of some pricing power to the electronics retail industry, as some competitors leave the space (specifically I expect www.ecost.com from PFSW to be shut down, as it is losing a lot of money each quarter - it is a direct competitor to www.tigerdirect.com).

The company recognizes the competitive pressures and is working to increase profit margins, as we can read on the Q1 2007 earnings release:

«We continued to see some competitive pricing pressures in our technology products business compared to last year; however, we were pleased that our consolidated gross margin improved significantly compared to last quarter. We also saw increased leverage in our cost structure as we lowered selling, general and administrative expense as a percentage of sales to 11.5% from 12.2% in 2006, excluding the aforementioned lawsuit settlement."»

4 - EPS Multiple

Well, as usual, here I put SYX's industry average, which is 23.89.

Computing all this, I get a final estimated share price of $107.75, a 71.56% share price CAGR and an optimal selling price today of $69.03

So I consider SYX extremely attractive, I'll hold it for the long term.

One of my motives to expect SYX's net profit margin to increase was:

Quote
This is my riskiest bet, because I expect net profit margin to rise from 1.92% in 2006 to 5% in 2009. I think it is time for the return of some pricing power to the electronics retail industry, as some competitors leave the space (specifically I expect www.ecost.com from PFSW to be shut down, as it is losing a lot of money each quarter - it is a direct competitor to www.tigerdirect.com).

And I was wrong. It's incredible, but PFSW was able to turn around operations at www.ecost.com, look at the news out yesterday:

• PFSweb Announces Preliminary Second Quarter Sales For eCOST.com
Business Wire (Mon 8:00am)

Sales are expected to grow 20% in Q2 2007 when compared to Q1 2007 at PFSW's ecost.com division. So I don't expect this division to be shut down, quite the opposite.

Anyway, what does this mean in terms of www.tigerdirect.com and SYX?

There are two ways to see the situation:

1) ecost.com was able to regain market share from its direct competitors;

2) The overall growth in e-commerce and the skills of PFSW's management and employees was enough to turn it around.

I guess it is a mix of the two. But I believe there's space in the market for three large websites that sell electronic goods, www.tigerdirect.com, www.ecost.com and www.newegg.com.

I remain faithful that SYX will be able to expand its net profit margin from 1.92% to 5% in three years and I'll keep holding the stock.

Over the next few updates I'll be interested in knowing more about Systemax, beyond www.tigerdirect.com. Not much time for that today.

I'll keep holding SYX, which was dragged down by the general market weakness yesterday, not a company specific issue.

One way for SYX to expand its net profit margin is for its Hosted Software division to start selling something meaningful and stop losing so much money:



$81 K in revenues from that segment and $2.7 M in losses in Q1 2007. Anyway, revenues from the segment are up 170% from the year ago levels

The company already invested $24 M in the hosted software segment:



It should work!

Over the next few updates we'll learn more about this "Hosted Software" segment of Systemax, which basically is their ProfitCenter software: http://www.profitcenter.com/webpcs/home/

I'll keep holding SYX.

As we've seen, SYX invested a lot in this ProfitCenter software stuff, look here when they launched the initiative:

February 5, 2004
PC Maker Systemax Launches Software Unit

Three and a half years later, the thing seems to be starting to get some market acceptance:

November 30, 2006
PCS Signs Four More Users

January 22, 2007
PCS Signs Current USA

Of course, this still represents an incipient part of SYX's revenues (but not profits, it has been affecting them in a meaningful way), but it can be a way of expanding the overall company net profit margin from the current 1.92% to the 5% expected in my valuation model. This Software unit just needs to stop losing so much money and start making some and voila.

Nice technical development yesterday with SYX rising 6% on the day, I'll keep holding.

I'll focus my research for SYX in two major areas:

1) www.tigerdirect.com

2) www.profitcenter.com

The issue on SYX is net profit margin. The evolution of that is what will dictate if SYX will be at $70 or at $20 three years from now. I think $70 will be the case, because, like in other stocks, there's one harm of the company (ProfitCenter) that has been sucking resources and not contributing to the company's profits, and that will probably change going forward.

I'll continue holding SYX.

I'm getting really late for these updates today, let me just say that I'll hold SYX and leave the updated chart.

Nothing new on SYX, www.tigerdirect.com and www.profitcenter.com are there, working for us. I expect the stock to breakout above $22 anytime soon.

A bit of a comeback on SYX yesterday, with no news out. No changes to make to the trading plan of holding the stock.

SYX is really big, I was surprised to see they have a species of TigerDirect even for Portugal (called "minsco"), take a look at the company's subsidiaries:

Systemax Subsidiaries & Divisions

There were no news out or new technical developments. I'll continue holding SYX.

SYX: Short Interest UP 6.0% to 5.8M in Jul 2007
Thursday , July 19, 2007 17:52ET

According to new short interest data from NYSE, short interest for Systemax Inc (NYSE: SYX) INCREASED 6.0% to 5,824,824 shares for the month ended mid-July, 2007.

SYMBOL       JUNE            JULY          CHANGE       %CHANGE      DAYS/COVER
--------   -------------   -------------   -------------  ------------  ----------
SYX       5,494,083       5,824,824        +330,741        +6.02%          16

Based on SYX's 20-day average daily share volume of 387,690, it would require approximately 16 day(s) of buying to cover this short interest.

cheers
Oliver