CDW (NASDAQ:CDW) is an Illinois-based old-tech company. The firm operates in the rather stodgy technology distribution business, selling personal computers and networking equipment to small and medium-sized businesses that lack in-house IT departments. CDW managed to post $10 billion in sales in the last 12 months, a remarkable feat for a company worth only $3.88 billion. The revenue looks even more impressive considering it came against a backdrop of the global shift from traditional computing models to cloud computing. 

Although CDW is not a pure-play tech company, but rather a PC retailer and cloud services provider, it has not been spared the perceptions dogging old-tech companies such as Microsoft, Dell (UNKNOWN:UNKNOWN), and HP.  CDW's stock, together with those of these companies, have low P/E valuations. But, investors' expectations of trouble might be overstated.

CDW is capable of reinventing itself
Dell is considered  one of the forerunners of online PC sales; CDW one-upped Dell by taking a giant step in reverse, backing off the web in favor of telemarketing in 2000. The move was met with industrywide skepticism, but CDW eventually had the last laugh.

CDW managed to rack up $4 billion in PC sales with its novel sales strategy in 2000 alone. The company managed to demonstrate that, apparently, even in this hi-tech age, there are advantages to the idea of high-touch.

Fast forward to 2013 and the company's well-developed cloud solutions business is a clear indication that the global shift to the cloud did not catch CDW napping, like it did several former IT heavyweights.

A history of exceeding expectations
CDW has a broad product offering base, large 250,000-strong customer base, and a highly productive workforce. These three features have enabled the company to consistently beat consensus estimates for profit margins and ROE, even as the firm developed a reputation of stealing market share from competitors.

Brian Alexander, a Raymond James Financial analyst, believes the firm will continue to outperform the market, and has given it a $27 price target, representing a 19.6% upside potential from the current $22.56 price. Sales revenues for CDW in 2006, the last time it was public, were $6.8 billion; the figure had grown to $10.1 billion in 2012, an average CAGR of 6.8% over the period. That's quite impressive for a company in the solutions provider industry.

Small and medium-sized businesses to continue needing CDW's services
The current industry trend where software and computing services are gradually moving from the office desktop to the cloud has muddied the waters for pure-play PC companies like Dell and HP, while improving the prospects for storage makers like EMC, Seagate Technology, and, Western Digital.

Despite the movement into the cloud, small and medium-sized business will continue needing the service of firms such as CDW. These businesses are likely to adjust gradually to the changing IT environment, and will reach out to companies like CDW for help in selecting the best cloud solutions for their businesses. CDW already has a large 200+ cloud solutions portfolio from 45 different companies. Investors have not yet fully realized just how much of a positive impact the shift into the cloud will have on CDW's bottom line. According to this CDW 2013 Cloud Solutions Report, adoption of cloud computing solutions by U.S. companies grew from 28% in 2011 to 39% in 2013. This provides cloud solution providers like CDW with solid growth prospects.

CDW peers
Ingram Micro (NYSE:IM) has $40 billion in sales revenue, four times as much as CDW. The firm has extensive international operations, with more than half its sales coming outside North America. Ingram, however, sports lower margins than CDW, partly because it rapidly shifts sales to higher volume (but lower-margin) products.

S&P Capital IQ analyst, Dylan Cathers, believes the firm's margin compression can be reversed with rigorous cost-cutting and product improvements. Ingram's recent acquisitions have led to considerable inorganic growth. Another bullish Ingram follower is Barclays analyst, Ben Reitzes, who predicts the firm's improving product mix will improve its profit margins.

Synnex (NYSE:SNX) is generating waves in the industry, after its recent announcement of plans to acquire IBM's customer-care business. The deal is valued at $505 million, but will add $1.2 billion to Synnex's revenue. The announcement has led to the firm's share price shooting up 25%, in addition to the 40% it has already gained since the beginning of this year, prior to the acquisition news. This has prompted analysts to give the firm a hold rating, not because of poor prospects, but rather due to valuation concerns.

Bottom line
Timing the pace of innovation can be quite tricky, as any Dell or HP investor knows only too well. These former high-flyers made the mistake of grossly underestimating the full effects that smartphones and tablets would have on their PC businesses, a mistake that has proven to be very costly for both. Luckily for CDW and its investors, the company is well-inured against the shift into the cloud. CDW is very likely to continue with its impressive growth track record.


Fool contributor Anthony Maina has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.