Microage is not really that different from the other distributors I listed. They all carry a mix of OEM and white box inventory and will sell whatever the customer demands. This is a boring, low margin, unglamorous business that is rapidly consolidating. On the other hand, as long as tech grows, each will capture some topline growth. After all, those SKUs have to be kept somewhere. E-commerce will likely disintermediate (i.e. kill off) the small end-reseller with high embedded fixed costs, but distributors are unlikely to be affected. This is exactly the model Amazon uses, and why Ingram Books was such a plum for B&N.
MICA is trading just a small amount above book and has an excruciating price-sales of .06. The distribution arm will be divested soon (hopefully they'll auction it), and this will likely expose shareholder value:
1) Low valuation of distribution biz. CHS has double the price-sales ratio, Ingram about 5 times.
2) 1 + 1 doesn't equal 2. Because the integrator sells products from the distributor, there is significant intercompany revenue that gets eliminated in the consolidated reports. Separate the two, and the revenue line magically goes up.
3) High valuation of services biz. IT service is one of those new-fangled new tech credos. Everybody claims to be a service company, from EDS to IBM to CSC to PriceWaterhouseCoopers. Whatever, the valuation of these companies on price-sales is much richer than .06.
The downside is extremely limited here. It's the kind of stock you put in your IRA. |
