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Placed a market order to buy 4,000 TESS, 40% of my maximum position for this stock.
TESS is a distributor of wireless products. Their most recent earnings report was a disappointment, and the stock has declined rapidly over the days leading up to and after the report. Trading volume is not heavy and my order is taking a while to fill, the first 40 shares were at 10.65.
Before placing the order, I updated my worksheet on TESS and listened to the webcast on their earnings report. Two analysts asked questions, that is fairly typical as the stock is not heavily followed. What I got out of the call was that the company recognizes the need to expand their customer base and product offerings so as to become less dependent on capex from national carriers. As with many distributors, margins are thin, and management continues to address this problem.
They have a sales initiative aimed at broadening the customer base to get more enterprise business. This is increasing SG&A and does not help immediate earnings. They recently made some sales organization changes aimed at improving execution of this initiative.
On margins, they are developing and presently selling a proprietary product line which gets higher margins. They have also opened a center that does the packaging and I believe some light assembly to convert bulk shipments from vendors to retail packages. This will be an expense savings over outsourcing and provide better control of inventory.
The company has been an active buyer of its own shares, based on my observations they buy low, a plus.
The current price at 10.65 is 10.3 X TTM earnings. Based on the history of Price/5 Yr Avg Earnings and Price/Sales, I see a midpoint price of 17.50/share, and would look for TESS to return to that price level when earnings and revenue growth reflect success of the sales intitiative and margin enhancements.
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