By Rick Aristotle Munarriz (TMF Edible)
July 31, 2000

PC Connection Inc.

Ticker: (Nasdaq: PCCC)
Phone: 603-423-2000
Website: www.pcconnection.com
Price (7/28/2000): $48

How Did It Double?

Computer retailing has been hit and miss over the years. While Tandy sold its sluggish Computer City division to fellow quicksand wader CompUSA, the full spectrum electronics superstores like Best Buy (NYSE: BBY) have thrived. This isn't to say that selling computers only works when there are home theater and car audio departments nearby. When Tandy went for the Best Buy on steroids approach with Incredible Universe, it too floundered.

In an industry where one month's speed machine is next month's clearance fodder, the art of hardware (and software) selling is critical. Execution separates the success stories, from, well, the executions.

Maybe that is why PC Connection (Nasdaq: PCCC) has been such a natural. It has evolved into a multidimensional computer supplier by getting it right nearly every step of the way. Growing up in mail-order, the company already knew how to run a tight ship with limited overhead. That gave the company the infrastructure to capitalize on the Internet while the CompUSAs of the world sputtered in the realm of e-commerce.

Then the company began to build out its outbound sales unit. By training account managers who would develop a personal relationship with corporate clients, the company has been able to broaden away from the desktop to also provide network servers and enterprise software to small- and medium-sized companies. Catering to the non-Fortune 500 group has paid off for PC Connection. Only the Internet sales are growing faster than outbound sales for the company. But, more importantly, the 475 (and growing) account managers are now generating the bulk of company revenues.

Finding that sweet spot in the computer vending route has made shares of PC Connection a soft sell for investors who like their surprises pleasant. Topping earnings expectations for the last few quarters, the stock price has soared six-fold since last summer's lows. No quicksand here.

Business Description

Beyond the company's online and print PC Connection and MacConnection catalogs, PC Connection now derives 77% of its sales from an outbound sales division that is expected to top 500 account managers later this year.

PC Connection stocks more than 100,000 products and will also custom-design systems and ship them overnight. Its ComTeq division sells to federal government agencies.

Financial Facts

Income Statement
12-month sales: $1284.2 million
12-month income: $29.3 million
12-month EPS: $1.19
Profit Margin: 2.3%
Market Cap: $1228.8 million (on 25.6 million s/o)

Balance Sheet
Cash: $19.2 million
Current Assets: $232.8 million
Current Liabilities: $144.5 million
Long-term Debt: $1.0 million

Ratios
Price-to-earnings: 40.3
Price-to-sales: 0.96

How Could You Have Found This Double?

History repeats. Back in October, PC Connection made our screen of analyst-topping fiscal performers. Three months later it did it again. Then again. And, yes, earlier this month it popped up again in our list of stocks that beat earning estimates by at least 9%.

PC Connection has trounced projections by at least four pennies a share every single quarter over the past year. As a regular in our Rising Margins screen, too, the company could have been spotted as a consistent overachiever.

Where to From Here?

Besting estimates time and again is no easy feat. Analysts keep raising the bar until a company eventually buckles under. In PC Connection's case, trouncing expectations by such a wide margin over the past year is almost embarrassing to Wall Street prognosticators. So, will the chagrin continue?

Outbound sales soared 86% last quarter. More account managers -- 52% more year over year -- explain part of that increase, but the juicier part of the equation is that the managers are drumming up larger orders. PC Connection, which some might only consider in terms of its colorful mail-order catalogs, is doing an amazing job in getting small corporate America up to networking speed.

Widening its services and offerings has made the company less susceptible to specific industry hiccups. In the process, it has become a more dynamic company. And, sure, the streak of always staying a few pennies ahead of the projections will eventually end. PC Connection's heady growth is bound to set off radars and bring in a more concerted effort on Wall Street to figure out exactly how good the company can become.

Over the next few quarters investors should continue to dig into the outbound sales figures -- even more so than the recent doubling of Internet sales -- because as outbound goes, so will the inbound at PC Connection -- the inbound of capital that is.

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