3SOF

DTLK - Datalink Corporation

Sector:    Technology
Industry:    Business Software & Services
Full Time Employees:    147
Shares Outstanding:    10.54M
Float:    6.98M
Market Cap:    71.15M

PROFILE: Datalink Corporation is an information storage architect. We analyze, design, implement, and support information storage infrastructures that store, protect, and provide continuous access to information.

Website: http://www.datalink.com/

Fundamental Discussion

Once DTLK came up in my scan I did a quick fundamental check and knew that I had something special.  That big volume gap up on April 12 came after a great earnings release:

Datalink Reports 2006 First-Quarter Operating Results
Wednesday April 12, 8:00 am ET[/i]
First Quarter Sales Rise 61 Percent over the Same Period in 2005
Net Earnings Increase to $833,000 versus a Loss of $4.7 Million in the Same Period in 2005
http://biz.yahoo.com/bw/060412/20060412005125.html?.v=1

Highlights include:
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- Fourth consecutive quarter of profitability and the first profitable first quarter since 2001;
- Seventh consecutive quarter of year-over-year revenue growth;
- Solid growth in customer support business, with revenues 27 percent higher on a year-over-year basis; and
- A strong book of business going forward[/b], the company's backlog at the beginning of the second quarter was $17.5 million and is currently at $25 million.

Outlook

For the 2006 second quarter ending June 30, 2006, Datalink expects revenues of between $32 million and $36 million, with net earnings ranging from $.03 to $.10 per diluted share. The net amounts do not reflect any income tax benefit or expense.
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The 1st quarter earnings were 34.3 Million and we have an estimate of 32-36million for the 2nd quarter Quarter.. if we estimate around the same for Q3 and Q4 and add that up.. conservatively we have 120 million in revenue for 2006.  The current mkt cap of DTLK is below this!  That is probably why DTLK has an amazingly low Price to Sales Ratio of .48!  Plenty of room for growth as the industry avg P/S is 2.52.

Trailing PE and Forward PE are very low as well..the balance sheet looks very clean.. and with all the growth we can see from this company(business is good) DTLK seems extremely undervalued .

Technical Discussion

DTLK made a strong volume backed breakout of the ascending channel it was trading in.  This also happened to be right where a long-term resistance breakout happened.  All major support lines below.  DTLK ready to go!

Long-Term


Medium-Term


Short-Term


Trade Plan

DTLK has a low float and only recently started having this huge volume.  Traders should be aware of this going in.  We plan to hold DTLK for some time and expect it to be very rewarding.  I want to make sure we buy this stock tomorrow so I will set a limit order whcih means it will fill at or better than the price.

We will buy DTLK @ limit 6.85 on 4/25.

A nice looking stock, but I would wait before jumping.  Info from DD:


An unexpectedly large order proved a boon for Datalink (DTLK: 6.75, 0.00, 0.0%). The information-storage company saw its shares rocket 28% higher Wednesday after first-quarter earnings blew away estimates. Management attributed the profit beat to a big sale that came in ahead of schedule. Investors jumped on the news, prompting some analysts to raise concerns that buyers late to the party were paying for an overvalued stock.

Datalink, based in Minneapolis, reported earnings of eight cents a share for the three months ended March 31, vs. a loss of 46 cents a share a year earlier. It was the company's first profitable first quarter since 2001. Sales rose 61% year-over-year to $34.3 million.

In a conference call with analysts early Wednesday, Chief Executive Charlie Westling singled out a $4 million hardware resale order from one of the company's largest customers that materialized earlier than anticipated. Datalink analyzes, designs and supports information-storage systems and also resells the hardware needed for storage area networks.

While the sale was welcome and business continues to expand, the CEO was quick to point out that investors shouldn't expect a repeat performance.

"We are not anticipating this level of business from a single customer in the second quarter," said Westling. "This will make our sequential revenue comparisons more difficult, but I believe we are well positioned to continue our earnings growth. There's lots of customer reinvestment — they are doing more for our storage management and compliance related business, including email archiving."

The first quarter marked the fourth consecutive quarter of sequential revenue growth for Datalink, which had 2005 sales of $82 million. The company is projected to book sales of $133 million this year, according to Thomson First Call.

Applaud G, started position in this play.

eliteG,

Any concerns about bigdog's post?

Thank you for the article bigdog.. but your highlighting makes it seem worse than it is.  The value analysis is based on company estimates on Quarter 2 so how they acquired their sales in Q1 is of no concern to us.

I would highlight from my analysis:
"For the 2006 second quarter ending June 30, 2006, Datalink expects revenues of between $32 million and $36 million."  The article you posted just talks about how 1 customer came in bigger than expected for Q1.. we cant deal with such micro elements or we will miss the whole macro picture.


update DTLK:

Very pleased with how DTLK ended the day.  Most likely we will see some horizontal consolidation here.  This is a value play and therefore we will give it more time to play itself out.

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Position: bought DTLK @ 6.85 on 4/25/2006
Order: Hold
Exit: n/a
Target: n/a
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Quote from: eliteG on April 25, 2006, 10:25:13 PM

Thank you for the article bigdog.. but your highlighting makes it seem worse than it is.  The value analysis is based on company estimates on Quarter 2 so how they acquired their sales in Q1 is of no concern to us.

Longer term macrowise, this pick is interesting ... still reading.  Microwise, I believe that markets are inefficient in the  short term (which is the only reason we can make money on short term trading), and that breakaway gaps based on blowout quarters happen even when companies tell investors about extraordinary circumstances.  I expect the stock to see $6 again in the short term (a quarter year for me) -- call it a fundamental adjustment to wait for what happens with an ordinary quarter or some sort of technical retracement.  We'll find out soon enough! 

update DTLK:

Bigdogs was right on  .. DTLK ran for the comfort of the $6 area but on friday put in a nice looking hammer.  Since our entry is so high I will count on this hammer to support and will place our stop just below.  Although this is a value play we are not willing to risk too much on wrong timing.

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Position: bought DTLK @ 6.85 on 4/25/2006
Order: Hold
Exit: stop @ 5.70
Target: n/a
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DTLK low 5.66 today, stop 5.70. it recovered some. did 3SOV team sell it?
any comments? thanks

Quote from: magu on May 02, 2006, 01:52:50 PM
DTLK low 5.66 today, stop 5.70. it recovered some. did 3SOV team sell it?
any comments? thanks

Yes we sold according to plan.. 5.67.. tough loss to take.. as this is still attractive fundamentally.. I will look to buy again soon if I like what I see.

I just bought this stock today at 5.69 on a limit order.  It closed at $6 to give me a 5.45% gain.  I know it sold from the 3SOV portfolio, but I can still use that stop price of 5.70, maybe a couple pennies higher, and I won't have any risk on this trade at all cuz I'd be guaranteed at least a breakeven.

Leaira

Hi EliteG:

   I still have DTLK, same story as NAPS.
   Hold it or sell it ?
     Thanks again!
   

Restarting position DTLK:

Time to pick DTLK back up!  We just hit our stop last time.. and got knocked out.. as if as if the stock did that just to show us our stop was in the wrong place.. well time to correct that mistake by buying this stock back.

A mini-breakout with volume.. and the same fundamentals as before. 

We will buy DTLK in the morning on 05/08.

I still have this stock from 5.69, and I'm up 18% on it.  Chart is looking awesome!

Leaira

Quote from: Leaira on May 08, 2006, 10:07:03 PM
I still have this stock from 5.69, and I'm up 18% on it.  Chart is looking awesome!

Leaira

Great job Leaira!  Thats what we like to hear.. traders making money!$$ 

update DTLK:

Looking solid.. DTLK is moving well with volume and almost completed its breakout today.

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Position: bought DTLK @ 6.84 on 09/05/2006
Order: Hold
Exit: n/a
Target: n/a
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