To call 2005 a disappointing year for investors in bar code printer- and scanner-maker ScanSource
After being highlighted as a "Watch List stock" in the June 2004 issue of Motley Fool Hidden Gems, when its shares were trading in the mid-to-low 50s, ScanSource continued to rise for nearly a year before taking a series of three gasp-inducing downward lunges toward $40.
After the third and final of those freefalls, I (apparently) called a bottom to the stock, pointing out in August that the company's forward guidance had reduced the firm's share price to a steal of a deal. Back then, it traded at "a P/E of 16.2 -- lower than its rate of return on equity (18%), its recent rate of annual income growth (19%) and of annual revenue growth (23%)." Mr. Market agreed with those numbers, it seems, and began bidding the shares back upward shortly thereafter. Over the past six months, ScanSource shares have gained back all of their 2005 losses and then some, rising 36% from their August nadir.
ScanSource's comeback story got a considerable boost earlier today when the company issued a press release preannouncing its sales results for its fiscal Q2 2006, which ended Dec. 31. The official results won't be out until Jan. 26, but for now, the news already looks good enough. Sales are estimated between $404 million and $411 million -- about a 10% improvement over fiscal Q2 2005. The company expressly refrained from mentioning how this revenue gain affected its profits for the quarter; but we can still make a guess, right?
Assume ScanSource maintained its net margin of the past 12 months (2.4%). Multiply that by the midpoint of the revenue estimate, and we're probably looking at approximately $9.8 million in profits for the quarter, or about $0.77 per share based on the firm's 12.68 million share count. If achieved, that number will beat both the consensus and the top earnings estimates of the five analysts who follow the stock. Unless the analysts revise their estimates upwards based on today's news, we could be looking at a positive "earnings surprise" come Jan. 26. And if the company returns to earning the 2.6% margin that it achieved in the year we highlighted it (2004), the news could be even better.
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Fool contributor Rich Smith does not currently own shares of ScanSource.
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