SYX

[David Randolph]

SYX is delivering on its promise of releasing 3Q results before the end of December. You can see on the following quote that I had been expecting this:

Nothing new on SYX, as I and the market continue to expect the company to deliver on the promise it made when it reported second quarter results, on November 22:

"The Company continues to work diligently to become current in its financial reporting and intends to release third quarter results before the end of December 2006."

Ok, it's before the end of December 2006, so they still have twenty days. The best thing that could happen would be if on the 3Q earnings release they said that 4Q results will be released on schedule. That would completely take out the cloud over this company's valuation.

And the news yesterday was:

• Systemax to Announce Third Quarter 2006 Earnings
Business Wire (Mon 10:07am)

Results will be out today after the close. The market reaction told me people are afraid of the results, as the stock fell 8% yesterday, touching support again and recovering a bit of ground towards the close. Volume was above average, at 666,700 shares. There wasn't any technical damage to the chart, as the stock remains stuck in a trading range.

I'm not afraid of earnings at all. I expect them to be weak due to seasonal factors (the market has that expectation priced in). What matters most for me is the guidance for Q4, almost always the strongest for retailers. And really bullish would be if they promised to deliver Q4 and full year results on schedule.

All in all, I'm not willing to let go of this online retailer trading at 1/5 of its annual revenues, without any dilution since 1995 and with EPS coming back up after big restructuring efforts over the 2000-2004 period. Not because I fear the earnings results.

Anyone that says "I'll never hold through earnings" will never be able to hold a stock for more than one quarter and will be cursed to be a short term trader for life, just watching quotes and never making any real big money out of it !

I won't fall into that common sense trap, I'll keep on holding SYX.

[soxguy]

david,nice call on syx.  looks like this will be way up tommorrow. congrats.  soxguy

[AussieTrader]

Systemax Reports Third Quarter 2006 Results; Net Income Increases to $.33 Vs. $.11 Per Diluted Share
Tuesday December 19, 5:27 pm ET
Third Quarter Highlights:
-- Quarterly sales: $575 million, up 18%, North America up 21%
-- Net income: Triples to $12.5 million
-- Operating income: Up 139%
-- Trailing 12 month operating income: $69.1 million vs. $22.2 million last year
-- Diluted earnings per share: Up threefold
-- Internet sales: Up 30%

PORT WASHINGTON, N.Y.--(BUSINESS WIRE)--Systemax Inc. (NYSE:SYX - News), a leading distributor and manufacturer of PC hardware, related computer products and industrial products in North America and Europe, today announced results for the third quarter and nine months ended September 30, 2006.

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Net sales for the quarter increased 18% to $575.0 million compared to $488.5 million in the same quarter last year. North American sales increased 21% to $395.5 million compared to the same period a year ago. In Europe sales totaled $179.5 million, an increase of 11% over last year. Income from operations more than doubled to $19.2 million compared to $8.0 million in the third quarter last year. Net income increased 221% to $12.5 million or $.33 per diluted share compared to $3.9 million or $.11 per diluted share in the third quarter last year.

For the nine months ended September 30, 2006, net sales increased 11% to $1.697 billion from $1.533 billion during the same period last year. Income from operations more than tripled to $50.6 million compared to $16.3 million in the same period last year. Net income increased 362% to $37.1 million or $.99 per diluted share compared to $8.0 million or $.22 per diluted share a year-ago. Results for 2006 include an after tax gain of $4.3 million or $.11 per diluted share from the sale of a warehouse facility in the first quarter of 2006. Excluding this gain, net income would have been $32.8 million or $.87 per diluted share compared to $8.0 million or $.22 per diluted share in the same period last year.

Richard Leeds, Chairman and Chief Executive Officer said, "I am extremely pleased with our third quarter results, highlighted by our 18% sales increase. Our internet sales continued their growth pattern accounting for 34% of total sales. Internet sales are the most efficient way to serve our customers and have contributed to our increased operating profit without significant additional costs. It is significant to note that our trailing twelve-month income from operations more than tripled to $69.1 million compared to $22.2 million during a comparable period a year-ago (See GAAP reconciliation table)."

Gilbert Fiorentino, CEO of Tiger Direct noted, "The sales growth of North American computer products during the third quarter of 2006 was due in large part to the strength of our e-commerce efforts and also reflects the success of our strategy of expanding product offerings. European sales increased 11% compared to the year-ago quarter with increases being achieved in all our markets. Industrial products sales were also strong, increasing 15% during the quarter."

Steven Goldschein, Chief Financial Officer, noted that the Company's overall financial condition remains solid as evidenced by its strong cash position and short-term borrowings only in certain European operations. Mr. Goldschein noted, "Our efforts to improve the timeliness and accuracy of our financial reporting both by adding personnel and strengthening our systems and procedures are continuing. We expect to report our full year 2006 results on time at the end of March 2007."

[BigSully1]

This is supposed to be their seasonally weak Q? I can't wait to see a strong one! Oh, and they included the note David wanted to see about filing on time. Wish I'd bought more yesterday.

[tokyopua]

They TRIPLED net income???  That deserves a triple

Stock up another 10% in AH trading, very nice!

[David Randolph]

Yes, this was a blowout quarter for SYX, much better than even I expected. I always thought it was my bad short term timing, and not my being wrong, that at some point in time showed me a paper loss of 13% in this stock.

I'm in the green now, and with this kind of results, I expect this to end up being an outstanding trade for the 3 Stocks on Fire Portfolio.

Putting Q3 results in its historical context, in terms of EPS, we get the following graph:



You can see this was the best 3rd quarter ever for the company.

SYX already made an EPS of $0.99 for the nine months so far in 2006, and the best is yet to come, as the 4th quarter is always the strongest. If they make, say, $0.41 in Q4 (entirely possible, perhaps conservative), we're looking at a full year 2006 EPS of $1.4. The stock is trading now, let me see, at $16, so the estimated earnings multiple is 11.4, with earnings tripling !

The industry SYX is inserted has an average earnings multiple of 23. SYX should be trading with an above average valuation, not below ... I can clearly see, based on fundamentals, that SYX will rise at least 100% (from $16), to accurately reflect the change in fundamentals.

Also, as BigSully mentioned, the company said it will report Q4 results on schedule, so there isn't any motive to keep it with this undervaluation. Not anymore.

Take one more look at www.tigerdirect.com, the driving force of all this. It says it all, doesn't it?

I'm glad SYX is performing well, as it should, of course I'll keep on holding the stock.

[vic666]

David,

You're the man...applauds to you on how you traded SYX, your strategy, holding it all the way through..and continuing to do so....that's pretty awesome. 

with a sure gap-up in the morning tomorrow...I believe it will not fall less than $14.72 (near term high from your chart above)...that is...even if it decides to take a dip. 

[thai626]

SYX on FIRE!!!!!!!!!     

The chart says it all...........no need to explain any further   

Congrats to all shareholders of SYX........it's been a long wait but it was well worth it!

Thai

[JKN]

Good Call David !!! Applause !!

In at 12.95, I'm following the plan, whatever it is...

[thai626]

Moment of truth time for SYX (1 day chart).  Looking for a descending triangle breakout!!  But if it doesn't, that fine as well.  I'll be holding regardless!

Maybe it's lunch time! 

[thai626]

Wow.....that was brutal!!!   

It's not going to shake me out of my shares...........not now anyways.  When you've found a gem, you've just got to hang on.

[David Randolph]

I see that you're making an effort to invest with a somewhat longer time frame thai626, I think that's good for you. In the old days you probably would have been shaken out of SYX by it's sudden break of the $17 level, right?

SYX made a big breakaway gap today. Will it come back down to close that gap or will it continue higher?

I think I shouldn't make that question, because, what's the scientific, rational base to answer it? Do you have one? I don't think you do, neither do I. Because short term moves, although they seem highly predictable, with time (perhaps a lot of time, unfortunately), you find out that ... they aren't predictable at all, they're a gamble

Fundamentally, as I wrote on yesterday's analysis, the best is yet to come on SYX, since the 4th quarter is always the strongest, for most retailers and of course SYX is no exception. When I want to buy a new computer or a new television, especially with the US Dollar this low, I know I'll buy it at www.tigerdirect.com. It's just too competitive, and the company shows rising profit margins, even with the discounts you see on their website.

I see EPS of $1.4 for full fiscal 2006, which means SYX is trading at less than 12 times earnings. It should be at least double that, considering the annual revenue and EPS growth. I rationally expect this stock to be up 100% over the next 3 - 6 months, I couldn't rationally sell it here, could I?

I'll continue holding SYX.

[David Randolph]

People can't resist a fast buck, even when the stock is so attractive as SYX is. As we've been discussing, fast bucks may buy you some goods or short term pleasures, but you'll lose them all back to the markets, plus more.

SYX has everything in its favor:

- Technical analysis says the trend is bullish;
- Fundamental analysis says the stock is at least 50% undervalued;
- They have a sound and profitable long term business model

I almost can't resist browsing www.tigerdirect.com to buy some stuff that I don't really need. SYX is a fast growing company with estimated $2.4 B in sales for 2006 and EPS of $1.4 and just $563 M market cap.

I believe this trade is like taking candy from a baby. I wish there are more out there like this, I need to find them !

[buddjas1]

I believe this trade is like taking candy from a baby.

You could not be more right.  SYX reappeared on the IBD 100 list this weekend at #4.  Our shares are beginning to look very cheap.  Great call David.  Do you have a target in mind?  I think $24-$25 is probable before the next 10Q.

 

[HANDBALLJIM]

To bad I was not visiting 3SOF the last couple of months. I had bought some SYX after the 2nd drop in October at 10.04...then bought more at around 11 and 12. I would have perhaps held my shares.

At the time I think I was looking for a quick profit, but I did realize it seemed to be a good company. But when you see a large drop (black candlestick) on the chart and then you see it followed by another...it kind of put some fear in the back of my head. So I ended up selling due to these concerns.

I have yet to read any helpful information about after hours strategies. After hours trading seems to be making and breaking many stocks these days. I am sure if a book comes out written by a professional trader on this subject it would sell off the chain. Has anyone seen any helpful info online?