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December 21, 2011 Volume 4, Issue 5
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DATALINK CORPORATION
(NASDAQ: DTLK) $8.03
OUTLOOK
Datalink Corporation, based out of Chanhassen, Minnesota, is a solutions and service provider to mid to large size companies.
We find the Company attractive due to its recent revenue and earnings growth, the anticipated continued demand for products and services in the industry in which it competes, its large and growing customer base, its strong balance sheet, its lack of debt, and appealing valuations.
Furthermore, from a technical analysis view point, we believe the stock
may currently be attempting to build support just below the $7.50 area.
Therefore, should we be correct in our analysis and should this possible
support area continue to hold, levels near this possible support area
may offer long term investors an attractive entry opportunity.
The Company assesses, designs, deploys and supports infrastructures such as servers, storage and networks.
Similarly, Datalink offers a full suite of consulting analysis, design, implementation, management and support services.
The Company sells its products and services through a direct sales force from 31 field sales offices.
It should be noted that Datalink's accounts and technical teams generated a total of 272 new customers in 2010 and sold product and services to 1,352 current customers.
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Industry analysts anticipate that private clouds will be deployed by over 50% of global 1000 companies by 2013 and that enterprise data will grow by 650% within five years due to the challenge of rapidly expanding amounts of data to manage.
We believe this may prove beneficial to the Company and its shareholders as this expected industry growth should drive demand for data center-focused solutions and services providers such as Datalink.
Along the same lines, Datalink's focus on mid to large size companies may prove beneficial as companies of this size are more focused on transforming data centers to increase agility, enhance service levels and reduce cost.
Additionally, as part of its growth strategy,the Company recently made a number of acquisitions and plans to continue to pursue acquisitions in the future.
In October 2011, Datalink acquired Midwave Corporation, an IT services and solutions firm.
The Midwave acquisition doubles Datalink's Cisco technology and services revenues as well as the size of its consulting services team, expands its managed services portfolio and adds an established security practice.
Additionally, the Company acquired the reseller business of Incentra LLC and the networking solutions division of Cross Telecom in the fourth quarter of fiscal 2009.
The Incentra acquisition doubled the Company's presence in Chicago and the Northeast as well as provides Datalink with a significant presence in the West.
Similarly, the Cross Telecom acquisition adds to Datalink's expertise in designing, implementing and managing sophisticated virtualized data center, storage and backup recovery solutions.
During the fiscal year ending December 31, 2010, the Company reported revenues of $293.679 million, an increase of nearly 65% compared to sales of $178.082 million in 2009.
The growth in revenues was primarily a result of increased customer support contract sales and the acquisition of Incentra.
Net income for fiscal 2010 improved to $2.302 million, up from a net loss of $555,000 in 2009.
The increase in net income was primarily due to higher revenues offset by lower margins and increased operating expenses.
Gross margin for fiscal 2010 fell to 23% compared to 26.1% in 2009.
It should be noted that gross margin was negatively impacted due to the mix and type of projects completed in 2010.
More recently the Company reported sales of $90.140 million for its third quarter ended September 30, 2011. This is up over 30% compared to sales of $69.220 million for the comparable quarter of 2010.
The jump was due in part to the impact of the Company's new revenue recognition policy.
Net income for the quarter increased to $2.793 million for the three months ended September 30, 2011, from $771,000 for the comparable three months of 2010.
The increase in net income was primarily due to increased revenues offset by slightly lower margins and slightly higher operating expenses.
Gross margin for the 2011 third quarter fell to 23.6% compared to gross margin of 24.1% during the comparable quarter of 2010.
Here again, gross margin was negatively impacted due to the mix and type of projects completed in the third quarter of fiscal 2011.
For the quarter ending September 30, 2011, the Company reported cash and equivalents of $30.820 million and working capital of $51.644 million. It should be mentioned that $50.918 million of accounts receivables and $52.213 million of deferred customer support contract costs make up a large percentage of the short term assets in this working capital equation.
Along the same line, it should be noted that the Company has no debt.
Still, we believe the Company's cash on hand and income from operations are sufficient to cover any funding needed for operations in the foreseeable future.
Still, readers should be warned that failure by the Company to successfully obtain additional future funding if and when needed, may jeopardize its ability to continue its business and operations.
Also, readers should be cautioned of possible liquidity issues with the stock. There are 16.963 million shares outstanding and the float is approximately 14.59 million. Additionally, volume averages only approximately 317,500 shares per day. Keeping this in mind, when trading such thinly traded stocks, we strongly recommend the use of limit orders and warn readers to expect added volatility.
Furthermore, it should also be noted that the Company depends on revenues from a small number
of large customers. The loss of business from any one of its primary customers
could have a material adverse effect on the Company.
During the fiscal year ended December 31, 2010, 12% of the Company's consolidated operating revenues came from its top five customers.
What's more, readers should be aware that the Company faces strong competition from companies with larger customer basis, greater name recognition, and significantly more financial and marketing resources.
Still, we find Datalink's focus on mid to large size companies along with the anticipated continued demand for products and services in the industry in which it competes very appealing. Additionally, the Company's strong balance sheet and lack of debt should be advantageous as Datalink meets growth challenges and attempts to maintain and manage that growth.
We believe Datalink Corporation may offer high risk tolerant long term investors an attractive growth play in the micro-cap arena.
For more information on Datalink Corporation, please visit the Company web site at
www.datalink.com.
Additionally, information can be obtained from the Company through its web site at www.datalink.com/ContactUs.aspx
or through its investor relations representative at (800) 448-6314.
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| 52 wk high |
$11.50 |
|
 Chart courtesy of StockCharts.com
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| 52 wk
low |
$4.30 |
| One
year return |
74% |
| Average Daily Volume |
317,500 |
| Shares
Outstanding (mil) |
16.963 |
| Market
Capitalization ($mil) |
131.75 |
| Insider Ownership |
23.4% |
|
|
| Annual
Cash Dividend |
$0.00 |
| Dividend Yield (%) |
0.0 |
|
|
| Risk
level |
High |
| Industry |
Data Storage Devices |
INCOME STATEMENT
(Dollars In thousands, except per share amounts)
| Full Year Ended December 31 |
2010 |
2009 |
| Revenues |
$293,679 |
$178,082 |
| Cost of Goods Sold |
226,043 |
131,646 |
| Gross Profit |
67,636 |
46,436 |
| Total Operating Expenses |
63,658 |
46,887 |
| Operating Income (Loss) |
3,978 |
(451) |
| Interest Income, Net |
14 |
94 |
| Other Expense |
- |
(1) |
| Income (Loss) before Income Tax Expense |
3,992 |
(358) |
| Income Tax Expense |
1,690 |
197 |
| Net Income (Loss) |
2,302 |
(555) |
| Basic and Diluted earnings (Loss) per share |
$0.18 |
$(0.04) |
| Full Year Ended Dec. 31 |
2011 |
2012 |
| Fiscal Yr |
$0.81 |
$0.91 |
^Single analyst Estimate.
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|
COMPANY NAME |
SYMBOL |
INDUSTRY |
DATE RECOMMENDED |
PRICE ADDED |
CURRENT PRICE
(12/20/11 Close) |
RETURN PERCENTAGE |
| Computer Task Group, Inc. |
CTGX |
Information Technology Services |
6/25/2008 |
$5.018 |
$13.83 |
175.6% |
| Datalink Corp. |
DTLK |
Data Storage Devices |
12/21/11 |
$7.78 |
$8.03 |
0.0% |
| DDI Corp. |
DDIC |
Printed Circuit Boards |
5/11/2011 |
$9.00 |
$9.31 |
3.4%* |
| GSI Technology Inc. |
GSIT |
Semiconductor - Broad Line |
10/29/2008 |
$3.30 |
$4.70 |
42.4% |
| Jewett-Cameron Trading Company Ltd. |
JCTCF |
Lumber, Wood Production |
7/23/2008 |
$6.75 |
$7.90 |
17.0% |
| Key Tronic Corporation |
KTCC |
Computer Peripherals |
12/1/10 |
$5.54 |
$4.55 |
-17.9% |
| NAPCO Security Technologies, Inc. |
NSSC |
Security & Protection Services |
12/3/2008 |
$1.41 |
$2.17 |
53.9% |
| Network Engines, Inc. |
NEI |
Security Software & Services |
6/22/2011 |
$1.03 |
$1.00 |
-2.9% |
| Norsat International, Inc. |
NSATF |
Communications Equipment |
|
|
$0.461 |
-40.1% |
| Sapiens International Corp. N.V. |
SPNS |
Technical & System Software |
|
|
|
93.6% |
| Servotronics, Inc. |
SVT |
Industrial Electrical Equipment |
1/21/2010 |
$9.41 |
$9.00 |
-4.4%* |
| Taylor Devices, Inc. |
TAYD |
Diversified Machinery |
|
|
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29.1% |
*Excludes dividends.
**Split adjusted price.
To see some of MicroCap Gems' past and present winners please click here.
The Holding Period Return for the MicroCap Gems portfolio year to date (12/31/2010 - 11/30/2011) is 10.804%.***
The Holding Period Return for the MicroCap Gems portfolio since inception (5/5/2005 - 11/30/2011) is 35.643%.***
The Russell Microcap™ Index year to date return (12/31/2010 - 11/30/2011) is -10.52%.
The Russell Microcap™ Index cumulative return for the period 5/5/2005 - 11/30/2011 is 9.081%.
***The portfolio is assumed to be equal weighted and is re-balanced every time there is an addition or deletion. Any dividends paid are incorporated into the holding period return. Data presented reflects past performance, which is no guarantee of future results. Due to market volatility, current performance may be higher or lower than the performance shown. Investors may incur a loss despite previous gains. Results will vary with economic and market conditions.
Additions
Datalink Corporation
(NASDAQ: DTLK) $8.03
The Data Storage Devices Company will be added to the MicroCap Gems portfolio as of December 21, 2011.
The added portfolio price will be the closing price as of December 21, 2011.
Deletions
There are no deletions to the MicroCap Gem portfolio.
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DDi Corporation
(NASDAQ: DDIC) $9.31
The provider of time-critical, technology advanced printed circuit board engineering and manufacturing services announced it increased its first quarter 2012 dividend by 20% to $0.12.
The increased dividend will be paid on March 30, 2012 to shareholders of record as of close of business on March 15, 2012.
The higher dividend increases DDi's dividend yield to 5.16%.
Currently, from a technical analysis view point, we believe the stock may be attempting to build support just below the $9.00 area. Therefore, should we be correct in our analysis and should this possible support area continue to hold, levels near this possible support area may offer long term investors an attractive entry opportunity.
We continue to find the Company attractive due to its longer term revenue and earnings growth, its strong margins, its focus on time critical services, its targeting of the military/aerospace sector, its large and diverse customer base and its high dividend yield.
Still, readers should be cautioned of possible liquidity issues with the stock. There are 21.845 million shares outstanding and the float is approximately 13.66 million. Additionally, volume averages only approximately 117,300 shares per day. Keeping this in mind, when trading such thinly traded stocks, we strongly recommend the use of limit orders and warn readers to expect added volatility.
It should also be noted that the Company cannot guarantee that it will continue to pay dividends or that dividends will continue to grow over time.
Furthermore, it should also be noted that the Company depends on revenues from a small number of large customers. The loss of business from any one of its primary customers could have a material adverse effect on the Company.
Additionally, the increasing prominence of EMS providers in the PCB industry could reduce gross margins, potential sales, and customers.
Also, the Company is subject to risks associated with currency fluctuations, which could have a material effect on operations and/or financial condition.
Furthermore, readers should be aware that the Company faces strong competition from companies with larger customer basis, greater name recognition, and significantly more financial and marketing resources.
For more information on DDi Corporation, please visit the Company web site at
www.ddiglobal.com.
Additionally, information can be obtained from the Company's investor relations representative at (310) 829-5400.
Network Engines, Inc.
(NASDAQ: NEI) $1.00
The provider of application platforms and appliance solutions reported it helped Alert logic to scale its business by by more than 40% during the first year of their partnership.
Currently, from a technical analysis view point, we believe the stock may be attempting to build support just below the $1.00 area. Therefore, should we be correct in our analysis and should this possible support area continue to hold, levels near this possible support area may offer long term investors an attractive entry opportunity.
We continue to find the Company attractive due to its revenue and earnings growth, its strong balance sheet, its growth strategy and its recently establishing a stock repurchase program.
Still, readers should be cautioned of possible liquidity issues with the stock. There are only 43.330 million shares outstanding and the float is approximately 36.16 million. Additionally, volume averages only approximately 374,800 shares per day. Keeping this in mind, when trading such thinly traded stocks, we strongly recommend the use of limit orders and warn readers to expect added volatility.
It should also be noted that the Company depends on revenues from a small number of large customers. The loss of business from any one of its primary customers could have a material adverse effect on the Company.
Furthermore, it should be noted that the Company's largest customer will duel source its Avamar product line beginning in the quarter ending September 30, 2011.
Additionally, readers should be aware that the Company faces strong competition from companies with larger customer basis, greater name recognition, and significantly more financial, technical, and marketing resources.
For corporate information on Network Engines, Inc., please visit the company web site www.nei.com. In addition, information can be obtained from the company investor relations representative at (646) 415-8972 or through email at peter@haydenir.com.
Sapiens International Corp. N.V.
(NASDAQ and TASE: SPNS) $3.00
The provider of information technology (IT) solutions for the insurance industry announced its FIS Life and Annuity policy administration solution was named the winner of an XCelent Award.
The solution earned the leading score for Breadth of Functionality in Celent's new North American Policy Administration System 2011: Life, Annuities and Health report.
Currently, from a technical analysis view point, it appears as if the stock may be attempting to build support just below the $3.00 area. Therefore, should we be correct in our analysis and should this possible support area continue to hold, levels near this possible support area may offer long term investors an attractive entry opportunity.
We continue to find the Company attractive due to its recent turn around and growth in its revenues and earnings, its greatly improved balance sheet and its trend of increasing gross margins and decreasing operating expenses as a percentage of revenues.
Still, readers should be cautioned of possible liquidity issues with the stock. There are only 31.916 million shares outstanding and the float is approximately 9.62 million. Additionally, volume averages only approximately 10,400 shares per day. Keeping this in mind, when trading such thinly traded stocks, we strongly recommend the use of limit orders and warn readers to expect added volatility.
Also, the Company depends on revenues from a small number of large customers. The loss of business from any one of its primary customers could have a material adverse effect on the Company.
Furthermore, the Company faces strong competition from U.S. and global companies with larger customer bases, greater name recognition, and significantly more financial resources and research and development facilities.
Additionally, the Company's international operations involve inherent risks, such as foreign currency fluctuations and compliance with various regulatory and tax regimes.
Similarly, the Company's corporate headquarters and research and development facilities are located in the State of Israel. Sapiens could be adversely affected by any major hostilities involving Israel as well as the interruption or curtailment of trade between Israel and its trading partners.
For more information on Sapiens International Corp., please visit the Company web site at www.sapiens.com. Additionally, information can be obtained from the Company’s investor relations representative through the web site contact page at www.sapiens.com/contact.htm.
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On Friday December 16, 2011, the Russell Microcap® Index closed at 1027.74. The index ended the week with the best performance of the four indexes for its trailing 30 day period. However, the Russell Microcap® Index ended the week with the worst performance of the four indexes for its year to date and trailing twelve month periods. The Index was up 0.34% over the trailing 30 day period. The Index was down 11.04% year to date and down 9.28% over the trailing twelve month period.
The Russell Midcap® Index ended the week with the worst performance of the four indexes for its trailing 30 day period. The index was down 2.38% over the trailing 30 day period. The Russell Midcap® Index was down 4.56% year to date and down 3.14% for the trailing twelve month period.
The S&P 500 ended the week down 1.39% over the trailing 30 day period. The Index was down 3.02% year to date and down 1.87% for the trailing twelve month period.
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The Dow Jones Industrial Average ended the week with the best performance of the four indexes for its year to date and trailing twelve month periods. The Dow was down 0.33% over the trailing 30 day period. The Index was up 2.49% year to date and up 3.19% for the trailing twelve month period.
From a technical analysis point of view of the two major indexes, the S&P 500 may see support just below the 1,150 area. Resistance should be expected just above the 1,300 area. The Dow may see support just below the 11,500 level while resistance may be expected just above the 12,500 area. |
| In the
Micro Class Notes section we share investing insight and
strategies to keep you ahead of the market. Also in this
section, we will alert you to scams and pump & dump
operations, which will help you avoid land mines in the
micro-cap world. |
MICROCAP GEMS SUBSCRIPTION
"Update" |
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In the near future MicroCap Gems will be offering both a free subscription and a paid premium subscription!
The new free offer will include a monthly newsletter with a brief profile of a MicroCap Gems portfolio stock. The free newsletter will also include our Micro-Cap Overview and Micro Class Notes Sections.
Our new paid premium subscription will offer a bi-weekly newsletter with a detailed description of a timely MicroCap Gems portfolio stock. The premium subscription newsletter will also offer our portfolio, additions and deletions to the portfolio and updates on current portfolio stocks.
Also included in the premium subscription will be email alerts as well as full access to the MicroCap Gems web site's portfolio as well as newsletter archives, email alert archives and a MicroCap Gems watch list of potential portfolio stocks.
In addition, premium newsletters will also include the Micro-Cap Overview and Micro Class Notes Sections.
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Making money is a hobby that will compliment any other hobbies you have beautifully.
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We are excited to be able to offer our readers this new premium subscription in the near future as this offer will give our subscribers even more timely advice with the addition of email alerts as well as more potential opportunities with the new watch list.
Please stay tuned for more on this future MicroCap Gems offer!
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Mission
We know that micro-cap stocks can be risky but we believe
that large profit potential exists in some of those same micro-cap companies.
The MicroCap Gems Newsletter attempts to find tremendous growth opportunities in the micro-cap market. We look for companies showing unusual promise and what we perceive as a favorable risk to reward ratio by using meticulous analysis of the company and its competitors. We do this by reading and evaluating all of the research reports written about micro-cap stocks, contacting the companies, customers and competitors.
Most of the research written about micro-cap stocks is termed “issuer paid research” since the companies themselves pay the research firm to have the report written.
MicroCap Gems is not an issuer paid research provider and to preserve our objective evaluations MicroCap Gems and its employees do not accept money, stock, services, or in-kind advertising in exchange for coverage of particular companies, securities or markets nor do any MicroCap Gem employees trade in any of the companies covered.
We believe that issuer paid research holds much value as long as you can filter out those reports making noise from the companies with true promise.
When we find a real ‘gem’ that merits your consideration we will profile the company in the MicroCap Gems newsletter. As many of these Gems are long-term investments, once we profile a company we will keep you abreast of on going developments as its investment story unfolds. As we do our due diligence we will also uncover and alert you to scams and pump/dump operations, which will help you avoid the land mines in the micro-cap world.
Editor Bio
The editor, Steven J. Anderson, has over 19 years experience in the investment
and trading arena. He graduated from West Virginia University in 1992 with a
BSBA in Finance/Investments and Securities. While in college, his stock market
passion had him actively analyzing and speculating in small and micro-cap stocks
by the time he started his junior year.
After college, Steve began trading commodity options and Dow futures as a member of the Chicago Board of Trade. However, his infatuation with smaller stocks soon had him starting up his own small cap investment newsletter. In 1996 he began writing the Anderson Small Cap Report that was an equities newsletter to investors focusing on small and micro capitalized stocks. Commentary from that newsletter was featured on many web sites and investment publications.
In 2004 Steve gave up trading to take a job as an Equity Analyst and ended the Anderson Small Cap Report.
Once again he found himself longing for the opportunity and excitement only found in the micro-cap stock arena. So in 2005 the MicroCap Gems newsletter was born.
Steve still believes that one of the most enjoyable aspects of writing his newsletter is his being permitted to help others benefit through his knowledge and experience. His infatuation with the markets and his desire to help others learn drives him to speak annually at the West Virginia University MBA Executive Speaker Series. At these seminars Steve speaks to students and industry professionals about his insight and involvement within the intriguing world of trading and investing.
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Disclaimer
The MicroCap Gems newsletter is solely for information purposes only and the statements and opinions in this report should not be construed as an offer or solicitation to purchase or sell any security. The information is created without regard to any investor's individual needs. If the reader should purchase or sell any security they do so at their own risk. MicroCap Gems LLC and its employees accept no liability for any losses or for consequential or incidental damages arising from any investor's reliance on or use of this report, even if the information is untimely, incomplete or incorrect. The reader should be aware the information provided by the editor may not be accurate, timely or complete. The information expressed in this letter is based upon the interpretation of available data, which the editor considers reliable, but the editor does not represent that the data is accurate or complete. The majority of statements and expressions are the sole opinions of the editor and are subject to change without notice. The data and information presented is provided for informational purposes only, and is not offered as a basis for investing in securities. Users of this letter should conduct their own independent investigation before making any investment or business decisions with respect to securities covered by the editor. MicroCap Gems LLC and its employees do not accept money, stock, services, or in-kind advertising in exchange for coverage of particular companies, securities or markets nor do any MicroCap Gems LLC employees trade in any of the companies covered. Past performance is no guarantee of future results. Investors may incur a loss despite a past history of gains. Any companies mentioned in this report may, or may not, be experiencing liquidity issues and may require additional capital to continue operations.
MicroCap Gems, LLC.
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