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With the recent hot IPO of VMware (NYSE:VMW), this is a good time to take a look at Wayside Technology Group (NASDAQ:WSTG). Wayside is a very small cap ($66 million market value) software reseller and distributor. They strive to be a value added vendor for higher margins than the competition.

They were VMware’s first distributor and the VMware product accounts for about 35-40% of revenue (36% last quarter).

The company has had good growth so far this year revenue up 33% and income up 68% in the 1st quarter and up 6% and 23% respectively in the 2nd quarter. The stock took a big hit when 2nd quarter revenues came in flat. Share prices dropped from over $18 to around $14 where it is trading today. Current PE is 16.

Here are what I see as the positives for Wayside Technology Group:

* Net profit margin increasing to 3% from 2.1%. Earnings continue to grow faster than revenues.
* Major vendor for VMware, a current high growth product.
* $20 million in cash for acquisitions or stock buy back
* Current dividend rate of4.2%
* Emphasis on value-added, higher margin business

Here are some negatives:

* Competitive, low margin business
* Revenues flattening as competitors cut margins to grow revenues
* Dang, this is a small cap company!

I believe this company has a positive future and the growth of VMware should give a boost to future revenues and earnings. Did I mention the 4.2% dividend and $20 million in cash? The company has an enterprise value (market cap minus cash) of $45 million and will earn over $4 million this year. With a maintenance of earnings growth the stock could double in the next year.

I am adding this company to my 20 Stock Portfolio (number 3). This portfolio is a list of companies I have reviewed and I believe have excellent profit potential.

Disclosure: I do not currently own a position in WSTG.

Source: Wayside Technology Worth a Look in Wake of VMware IPO