idea #22 PC Mall, MALL

I was toying around with a concept for screen to find a company that has "managers with guts."  What companies got off their butts and bought back bucketloads of their own shares at just the right time when the market collapsed in March of 2009?  At the time most every stock was absurdly cheap but most investors were scared stocks would just keep getting cheaper... cheap, cheaper, cheaper, cheaper still was the way it went.  Mr. Market was screaming that the end of the world was near.  Any company that stepped up to the plate and "eliminated partners" was doing something massively accretive to the remaining shareholders, even though the remaining shareholders might not feel the effects for years to come.  So, it turns out that out of 8000+ companies, PC Mall was one of the gutsiest.  They bought back over 400k shares near the market low, and near their 52-week low of $3.70.  They eliminated 3.2% of the shares in one single quarter.

As with anything I see problems with owning this stock:  The CEO owns 17% of the company.  He gets paid too much.  $1 million dollar/year salary & bonus is too much for a company with a $60 millioin market cap.  Expressed another way, his compensation works out to be 8 cents a share, every year.  The most recent quarter, the operating cashflow was negative and inventory ticked up, as did shares outstanding.  Insiders are selling.  Earnings' history is not stable.

The stock is cheap relative to history, trading at .7x book value when it normally trades at 1.5x. 1.5x book value is expensive for the below average return on assets (low 2-3%).  A big discount to book value is appropriate for these assets.  A longtime VIC favorite, ePlus, is kind of a pc supplier and it is cheap.  It has stayed cheap for a very long time, which doesn't bode well for PCMall. 

On the bullish side, supposedly we're in the midst of a PC upgrade cycle... a big positive trend for the computer industry.  Windows 7 is acceptable to the market and people are upgrading.  Intel, Western Digital and numberous PC suppliers are doing well.

In a nutshell, I don't know what kind of catalyst will make this stock go up but they are producing cash and they are buying back shares so there's probably a lot worse places to be sitting right now than on some mall shares.  I have shopped at PcMall and see no sustainable competitive advantage in their business.

My PC Upgrade cycle
Discount to book value (what is BS?)
Lot of buybacks in 3/31/09 quarter
earnings discount