Gary, I don't follow this stock, but I saw this article that might cheer you up just a little! Good luck,
Stock of the Month
We have tailored this feature to subscribers seeking a single investment idea and investors who are
utilizing a system of dollar-cost averaging, allotting a fixed amount of money each month for stock
purchases. The latter has proven to be an excellent strategy as the ups and downs of the market are
smoothed by buying more shares when stocks are low and fewer shares when they are high.
DATAFLEX CORPORATION
Bigger is not necessarily better. Dataflex Corp. (DFLX - $2.88), December's Stock of the Month,
learned this lesson the hard way after making six acquisitions during the previous two fiscal years
that rocketed revenues to $472 million in fiscal '96 (ended 3/96) compared to $122 million in fiscal
'94. After maintaining a clean balance sheet, virtually free of longterm debt throughout its corporate
life, Dataflex assumed over $50 million in longterm debt in funding the purchases and began to incur
hefty interest expenses. As illustrated in the accompanying chart, while the company's operating
income (Earnings Before Interest and Taxes) over the past 18 months remained in the black, interest
expenses consumed all of its EBIT and then some, pushing the bottom line into the red and inciting a
major selloff in its stock price. DFLX had reached $10 a share before the ill-fated buying binge.
Realizing the error of its ways, the direct marketer of desktop computer equipment and related
products supplied by the likes of IBM, Compaq, Hewlett Packard and Apple embarked on a major
consolidation that has left the company with operations in the Southeastern U.S. and anticipated
annual revenues of $160 million. In the last six months, Dataflex completed the sale of its Western
U.S. Division for $42 million and sold its Eastern and Midwestern regional operations for $43.5
million, improving its balance sheet by pruning debt from $65 million to $22 million.
Because the Southeastern division posted a 19% jump in sales in the second quarter (ended 9/96)
and the company is the exclusive Apple Education dealer for grades K-12 in nine Southern states
and we soon expect a return to profitability, perhaps as early as the current quarter now that interest
expenses have been slashed, we believe Dataflex has turned the corner and is on the road to
recovery. Since the stock still trades near an eight- year low price and considerably below its $4.96
per share book value, we would buy DFLX up to $3.15. Our three-to-five-year price target is $6. |
