SYX

[David Randolph]

SYX: New 52-Wk Low @ $16.030 dn 7.87%
Wednesday, January 09, 2008 14:15ET

Yep la-onda, SYX has been all over the place on the technical side, since in mid December it made a bullish breakout, followed by the current bearish breakdown.

The stock was able to bounce from the $16 support level on volume above average, we'll see what the next few days bring.

Check out MALL also. Looks like a possible bottom. I'm considering buying back.

Jesus, MALL fell 68% in a couple of months ... awesome exit timing BigSully1:



Was there any news causing this sell-off?

Well, gross margin declined a bit in Q3 and the stock's fall started after that earnings release, but I don't see it as enough of a cause for a 68% drop, since EPS still came in above expectations.

Since then the news releases have been fairly positive, like this one for example:

• MacMall Reports Strong Thanksgiving Weekend/Cyber Monday Sales
Business Wire (Tue, Nov 27)

Considering analysts 2008 estimates, MALL is trading at 6.8 times forward earnings:



Investors are extremely negative on the US consumer to be pricing these online retailers at such low valuations. I'm not going to play macroeconomist here (they're wrong most of the times anyway), and yes, I find MALL very attractive at this ridiculously low $94 M market cap.

Going back to SYX, which recently acquired part of compUSA. I enjoy this consolidation in the sector ... somebody will have to make money selling computers over the internet ... "no, wait a minute, nobody will ever buy a new computer ever again" hahahaha

Trying to get serious, because the loss on the Main is serious. SYX is fundamentally attractive, but MALL seems even more attractive using a valuation and growth rate comparison.

I just don't feel like throwing more money into this sector ... good luck BigSully1 (not that you need it)

I'll hold SYX.

[David Randolph]

Retailers are out of favor in the market now, because everybody is pessimistic on the US consumption outlook. It makes sense to think that a good deal of the past consumption was made using credit and with the current overload of debt it will be difficult for consumption to expand meaningfully. It may even contract by 1 or 2 percentage points in 2008.

There's nothing new or dramatic about this, the US economy had 13 recessions in the past 100 years, and it always came out stronger.

Anyway, the number of people using the internet to purchase their computers and other electronics will continue to expand, in my view. Perhaps e-commerce won't grow 18% a year going forward, like it did in 2007 vs 2006, but I doubt that it will grow at single digits in 2008.

Say there's going to be 10% growth in e-commerce in 2008.

With 18% e-commerce growth, SYX grew EPS by 42%. So I think it is legitimate to think that with 10% e-commerce growth SYX's EPS will probably rise by about 23% in 2008. This would mean 2008 EPS of about $1.98 and the forward earnings multiple would then be 8.

In my view the growth rate is 23% and the p/e is 8, which is very attractive.

Concerning risk, the fact that SYX has revenue of about $2.8 B in 2007 and its net profit margin is very low (in the 2 to 3% range) tells me that EPS doesn't change a lot due to changes in the revenue level. In other words, I believe that if SYX sells less, its costs will decline almost in the same proportion, so EPS won't be all that affected. With precise cost cutting measures EPS may even rise even if revenues fall (which I don't think it will happen).

The current crisis gave SYX the opportunity to buy CompUSA assets at what seems to be a deep discount price.

As for the chart, as I didn't put much emphasis when the stock had a bullish breakout, I'm not going to be overly concerned with the current weakness either.

I'll continue holding SYX.

[David Randolph]

SYX closed positive yesterday ... I'll keep the faith.

[BigSully1]

Strong day for MALL. They might just be pegging it to $7.50 for "max pain"

[BigSully1]

Wow, MALL is really fired up today. Just took some off the table at $9.00.

[David Randolph]

Wow, MALL is really fired up today. Just took some off the table at $9.00.

Indeed Sully, MALL was just too cheap. Unfortunately it seems it will need to work some more on that chart ... perhaps a double bottom around $7? So far and from a technical standpoint it looks like just a bounce towards resistance, prior support:



I would have bought MALL if I had some more cash available ... good luck on your trades

As I see SYX, it is as cheap as MALL, selling at 7.3 times my 2008 EPS estimate of $2. I know, I know, you may say "but the economy is terrible, the market is crashing down, consumption will fall, etc", but my take is that e-commerce will still grow, probably not at a 18-25% rate like in the past few years, but say, something like 5-10%?

This will be more than enough for SYX to achieve $2 EPS in 2008.

I'll keep holding SYX for the long term, despite the horrible short term setback.

[BigSully1]

Wow, MALL is really fired up today. Just took some off the table at $9.00.

Indeed Sully, MALL was just too cheap. Unfortunately it seems it will need to work some more on that chart ... perhaps a double bottom around $7? So far and from a technical standpoint it looks like just a bounce towards resistance, prior support:



I would have bought MALL if I had some more cash available ... good luck on your trades

As I see SYX, it is as cheap as MALL, selling at 7.3 times my 2008 EPS estimate of $2. I know, I know, you may say "but the economy is terrible, the market is crashing down, consumption will fall, etc", but my take is that e-commerce will still grow, probably not at a 18-25% rate like in the past few years, but say, something like 5-10%?

This will be more than enough for SYX to achieve $2 EPS in 2008.

I'll keep holding SYX for the long term, despite the horrible short term setback.

Yep, MALL is now trading right at that $9.65 resistance level, I should have held to there. Whoops! Maybe SYX will soon take off for you guys very soon.

[David Randolph]

Yep, MALL is now trading right at that $9.65 resistance level, I should have held to there. Whoops! Maybe SYX will soon take off for you guys very soon.

Yep, we still have some more work to do around the $16 resistance level, but I remain confident that the breakdown was a trap and not a reliable signal that SYX will keep going down. I mean, this company sells $3 B a year and its profit margin has been steadily rising, how much lower can it go?

I'll hold SYX.

[das317]

What do you guys think of Mall back down around 7?  I just picked some up at 7.07.

[BigSully1]

I'm still waiting. It will probably go lower yet, maybe Monday.

[la-onda]

fyi:
Systemax stock may be hit by rebate probe-Barron's
Sun Jan 27, 2008 5:59pm EST

NEW YORK, Jan 27 (Reuters) - Shares of Systemax Inc (SYX.N: Quote, Profile, Research), a seller of computer hardware, electronic and industrial products, may dip in response to inquiries into the rebate-accounting practices of its TigerDirect retailer, according to Barron's.

Widespread complaints, customer lawsuits and now an investigation by Florida's attorney general allege that TigerDirect fails to pass on manufacturer's rebates to customers, Barron's said.

If these allegations pan out, then the end of that practice could hurt Systemax's profits, the financial weekly said in its Jan. 28 edition. (Reporting by Lisa Lee; Editing by Braden Reddall)

[das317]

David,
Any thoughts to this article or movement in SYX today?

[capricho]

Tiger Direct has been ripping off its customers for years in shamelessly refusing to honor rebates. Google 'Tiger Direct Rebate Complaints' to see the vast number of disgruntled victims who posted their horrible experiences. I do not believe in investing in dishonest companies that have a disdainful attitude towards its customer base. David, please liquidate this position on moral grounds if for no other reason.

[David Randolph]

David,
Any thoughts to this article or movement in SYX today?

This is the complete article from Barrons:

Can This Tiger Keep Roaring?    
Monday, January 28, 2008

I didn't write anything about it yesterday because when I saw the article the market was already open, but mainly because this is an old story. StockLemon issued exactly the same warning one year ago:

Stocklemon Reports on Systemax (NYSE:SYX) Part II
Posted in Citron Reports by Stocklemon on the January 17th, 2007

At the time we've analyzed the situation thoroughly and it appeared to me that the "rebates" issue was much less serious than it was being painted. SYX replied everybody's complaints, replied Citron Research and the stock went up and down but I guess the issue was forgotten. I never thought Barrons would turn an old story into a "new" one and make the stock dive 13.3% to an even cheaper territory.

Tiger Direct has been ripping off its customers for years in shamelessly refusing to honor rebates. Google 'Tiger Direct Rebate Complaints' to see the vast number of disgruntled victims who posted their horrible experiences.

You can do the same for Wal Mart or McDonalds and get to the same easy and erroneous conclusion.

I do not believe in investing in dishonest companies that have a disdainful attitude towards its customer base.

Me either. But who said SYX is dishonest and have a disdainful attitude towards its clients?

Barrons said it. You said it. But the costumers themselves didn't, they seem pretty happy:



TigerDirect.com Customer Reviews

Tiger's Costumer service responds to all valid critics on several websites. Of course, they don't reply to shorts and bashers of all kind, who are not complaining because they had a bad buying experience, but because they want the stock to go down:

Tiger Direct Customer Reviews

David, please liquidate this position on moral grounds if for no other reason.

On moral and patriotic grounds (even though I'm not an American) I'm not going to sell SYX trading at 6.7 times earnings!!! Much less so because a magazine comes up with an old and biased story.

I see almost all costumers happy with TigerDirect and that wouldn't be the case if the allegations were true. Moreover, if a 2.1% net profit margin is high ... I don't know what would be low. Perhaps all online retailers must lose money, or else their business is a fraud

Now, the insidious shorts are using all their weapons to take this marvelous company down and perhaps they'll succeed over the short term, which is quite sad.

Longer term, SYX sells too much and insiders own too much of the company (why would they want to inflate earnings since they don't dilute shareholder's value?) for it to be down for long. If SYX wanted to inflate earnings, all they had to do was shut down their ProfitCenter software division, which loses a lot every quarter. That would be easy over the short term. But no, SYX's management is creating long term value, yet that is not reflected by the share price because of the shorts campaign and the general market conditions.

I'll continue holding SYX for the long term.

[David Randolph]

SYX looks hopeless here

Capricho and other bears on this stock were right, I was dead wrong.

I've been estimating that SYX will earn $2 per share in 2008, but I'm not so sure anymore, the market probably knows something that I don't. People believe the American consumer is going to fall of a cliff.

I've just noticed www.tigerdirect.com now also sells in the UK, Germany and France. I guess online retailers are adapting to a new World, one that isn't US-centric. I have this firm believe that the rest of the World will pick up the slack from the US consumer, as domestic demand in other countries rises (especially in the BRIC countries, where the savings rate is very high).

SYX is my "contrarian play" and I'm paying a big price for going against the crowd. But I mean, SYX sells about $2.8 B a year and the market cap is just $436 M. The earnings multiple is 6 or something (even though some people question the way earnings are achieved - I disagree with those people).

Can SYX's earnings multiple go to 3 or 4? I guess everything is possible. But it is also possible and far more likely in my view that a couple of years down the road the p/e will be more like 20.

The setback in SYX is absolutely horrible, but I feel it's too late to sell now and I love the business, so I'll keep holding, just like business owners don't close doors and go away because there's a bear market.