One of the stocks currently listed in out Deep Value Small & Micro-Cap Screen is Wayside Technology Group, Inc. (NASDAQ:WSTG).
Wayside offers an extensive line of products from leading publishers of software and tools for virtualization/cloud computing, security, networking, storage and infrastructure management, application life-cycle management and other technically sophisticated domains as well as computer hardware.
The Company is organized into two reportable operating segments. The “Lifeboat Distribution” segment distributes technical software to corporate resellers, value added resellers (VARs), consultants and systems integrators worldwide. The “TechXtend” segment is a value-added reseller of software, hardware and services for corporations, government organizations and academic institutions in the USA and Canada.
Wayside recently released its Q2 2016 Quarterly report so I thought I’d take a closer look.
Here’s what I found…
Net Sales
Net sales for the second quarter ended June 30, 2016 increased 14% or $13.3 million to $105.3 million compared to $92.0 million for the same period in 2015. Total sales for the second quarter of 2016 for the Lifeboat Distribution segment were $89.7 million compared to $81.3 million in the second quarter of 2015, representing an increase of $8.4 million or 10%. Total sales for the second quarter of 2016 for the TechXtend segment were $15.6 million compared to $10.7 million in the second quarter of 2015, representing an increase of $4.9 million or 46%.
The 10% increase in net sales for the Lifeboat Distribution segment was mainly a result of the addition of several key product lines and the ongoing strategy of strengthening of its account penetration. This was offset in part by lower sales to one of its key accounts. The 46% increase in net sales in the TechXtend segment was primarily due to an increase of $5.6 million in extended payment terms sales transactions as compared to the second quarter ended June 30, 2015.
(Source: Company Reports)
Gross Profit
Gross profit margin (gross profit as a percentage of net sales) for the second quarter ended June 30, 2016 was 6.7% compared to 7.0% for the second quarter of 2015. Gross profit margin for the Lifeboat Distribution segment for the second quarter of 2016 was 6.2% compared to 6.3% for the second quarter of 2015.
The decrease in gross profit margin for the Lifeboat Distribution segment was primarily caused by a program change by one of their main vendors, causing gross margins to decline by 1.8% for that line. Gross profit margin for the TechXtend segment for the second quarter of 2016 was 9.3% compared to 12.3% for the second quarter of 2015. The decrease in gross profit margin for the TechXtend segment was primarily caused by the increase in extended payment sales transaction which carry lower margins.
Net Income
Net income has increased to $1.52 million for the quarter, up 12% from $1.36 for the previous corresponding period.
(Source: Company Reports)
Lets take a look at the Balance Sheet…
The company has current assets of $89 million, which includes cash and cash equivalents of $25.5 million, and current liabilities of $58 million, with no longer term liabilities.
(Source: Company Reports)
Free Cashflow
Wayside had $2.36 million in cashflow from operations and $0.186 million in cash flow for capital expenditures giving it free cash flow of $2.2 million. The company repurchased treasury stock and paid dividends without borrowing any capital and still had net cash left over of $0.286 million.
Valuation
With a current market cap around $85 million and cash exceeding debt by $25 million, that means Wayside has an Enterprise Value of around $61 million and an Enterprise Multiple of 7.26.
The company has had consistent and improving revenue over the last 12 months together with positive earnings. It has a strong balance sheet, positive free cash flow, and its being repurchasing treasury stock and paying dividends without the need to borrow capital.
For me, this is one micro-cap that certainly is well run and currently undervalued.
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