Time To Buy This $10 Cloud Computing Stock

Apr.29.12 | About: Datalink Corporation (DTLK)

The move to cloud computing has enabled significant data center growth and demand for virtual services as well as storage solutions. This trend should continue for the foreseeable future. One stock poised to benefit from this theme that looks undervalued at current prices is Datalink (NASDAQ:DTLK).

Datalink - "Datalink Corporation data center solutions and services to mid and large-size companies in the United States. It engages in assessing, designing, deploying, and supporting infrastructures, such as servers, storage, and networks; and reselling hardware and software from original equipment manufacturers". (Business Description from Yahoo Finance)

7 reasons Datalink is undervalued at just under $10 a share:

  • It is poised to grow earnings at a good clip over the next couple of years. The company earned 80 cents a share in FY2011 and analysts have it making $.92 a share in FY2012 and $1.08 in FY2013.
  • The stock is selling at just over 9 times forward earnings, a discount to its five year average (13.4).
  • Datalink has a solid balance sheet with over $20mm in net cash (13% of current market capitalization). It is selling at just 43% annual revenues.
  • Analysts have it growing revenues by 30% this year and over 12% in FY2013. The company has made several small strategic acquisitions over the last few years which have bolstered growth and filled out its product line.
  • The six analysts that cover the stock have a median price target of $12.75 a share on Datalink.
  • The company has beat earnings estimates easily three of the last four quarters (it met expectations the other quarter). The average beat over consensus over that time period has been north of 30%.
  • Given its small market capitalization (Under $160mm after taking cash out), fast growing sales and position to benefit from cloud computing; this company would make an easy and logical acquisition for a larger player.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DTLK over the next 72 hours.