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PC Connection (NASDAQ: PCCC), Catalysts To Move Higher This Year

|Includes:DELL, HPQ, INTC, PC Connection, Inc. (PCCC)

It seems that the experts have constantly touted the irrelevance of the personal computer industry for the future. Smartphones and tablets have become the norm in the business. In fact, shares of PC giants such as Intel (NASDAQ: INTC), Hewlett-Packard (NYSE: HPQ) and Dell (NASDAQ: DELL) are trading at low multi-year valuations. While the near-term sales growth of PC makers will be lower, there is a big probability that they will recover as they quickly adapt to the ever-changing consumer needs. Looking back, it is amazing how Big Blue International Business Machines (NYSE: IBM) has managed to stay in the game despite the constant changes of the industry.

Over the past few years, the market has been selling these stocks indiscriminately giving astute investors opportunity to buy into good names. PC Connection (NASDAQ: PCCC) is one good business that the market has written off. This $327 million company is a direct marketer of various information technology solutions. It helps companies design, enable, manage and service their information technology environment. Its products include computer systems, software and peripheral environment.

It recently reported its full year results. Net sales for the year reached $2.2 billion, an increase of 2.6% compared to the same period last year. During the year, there were mixed results among its product segments. Both notebook and software sales increased while desktop and server sales registered a decline.

Net income amounted to $33.1 million, or $1.24 per share. This is higher than the previous year's $28.8 million, or $1.07 per share. Excluding special charges related to retirement and severance payments, pro-forma net income would have been at $33.8 million, or an increase of 18.7% from the prior year. This is higher than its 5-year average earnings growth rate of 14.94%.

Analysts expect the company to post $1.29 earnings per share this year, an increase of 1.60% from the previous year. However, the company is projected to post earnings growth of 25% over the next 5 years. More importantly, the company has significantly cash reserve of $39.9 million, compared to the previous year's $4.6 million. This gives investors assurance that the company can withstand stressed environments. It will also give them financial flexibility to pursue value-accretive growth expansions.

At present, the stock is trading at inexpensive levels at 10.38 times earnings. For the last 5 years, its stock has traded between 10.32 times and 13.34 times. The market is still not convinced that PC Connection has strong prospects in the future despite better than expected earnings growth and special dividend payment. Moving forward, management sees better top-line growth and overall profitability. This should be one of the catalysts for the stock to move higher this year.