Mark Johnson asked me to write an article on PROG. Here it is:
Mark,
As you suggested, I'm going to describe why I like PROG (Programmers Paradise). PROG is an "internet play". In truth, PROG is a solid company that sells through multiple channels and the internet is one sales channel, and growing. In fact, PROG's internet sales growth posted a 205% gain, so far in Q1, 1999. (See the Press Release dated: February 12th - Business Wire.)
STOCK PRICE APPRECIATION:
I believe PROG as a chance to double in the next few months. Primarily because the consensus estimates are for $.16 earnings for Q1 and these estimates, I feel, are quite low considering PROG's path and proof of growth. I see PROG blowing past those estimates to $.20 or even $.22 a share and with gross sales of 77 to 80 Million. (Q1 is seasonally a smaller revenue quarter for PROG than Q4.) One ardent SI poster, Zeev, thinks PROG will do $1.45 for the year in business, while estimates are at $.85. Zeev has a pretty good track record. I saw Zeev reap a 5 bagger on GATE over a year ago. Zeev's as good as most analysts, but don't tell him I said that, as I don't want it going to his head!
As a point of reference, PROG beat consensus estimates of $.28 a share for Q4, 1998, by turning in earnings of $.32 a share, 4 cents better.
DOWNSIDE RISK:
I think PROG has little downside risk. Because currently PROG is trading (14 ½) near the bottom of its past 45 day trading range (13 ½ to 18) and shows strong support even on very light volume. And because PROG is such a value.
VALUE:
PROG's P/E is 22. Very low for the business space it's in. If you look at other internet companies, and let's take a snapshot of some comparative values, and you be the judge:
Company NAME - P/E)
PROG - 22
DRIV - no earnings. $1.01 loss
BYND - no earnings. $1.28 loss
YHOO - 1171
EGGS - no earnings. $2.55 loss
AMZN - no earnings. $.84 loss
EBAY - 3918.95
Of course, I could go on and on with these various interNUT comparisons. Why is PROG at such a value?
UNDISCOVERED FOR ONE REASON:
PROG has a small following of only two analysts, both rate the company a strong buy. PROG has previously been a very tight lipped company, believing that there was never a legal need to manage the street. PROG has a new CEO, Bill Willett, as of 7 months ago. Mr. Willett has changed the PROG business plan to one of exploit the internet and talk to analysts and perform. Increased exposure is just beginning. With only 4.8 million shares in the float, it won't take much to have the stock "pop". (Note: PROG just filed an S-8 to make available another 1 million or so shares. This is a normal thing, but insiders will be able to sell some stock and hence, the float may increase a bit during 1999.) PROG is also undiscovered as an internet company because it has not had the luxury of a recent IPO, during the past 6 month "mania period". Further, PROG's new website didn't go on-line until mid January of 1999. So, PROG is very new to the scene as "an internet play". PROG is also one of the more legitimate investments in that space.
WHAT PROG DOES:
PROG sells software and hardware to a very loyal base of customers: Computer professionals. PROG has plenty of room for expansion, even into retail channels or to simply exploit the segment they already dominate.
For PROG, hardware is a new source of content for them to sell. PROG had made a nice profit ($.66 per share earnings in 1998) of selling primarily just software. In January, Q1 of 1999, PROG began selling hardware too, to provide "one stop" shopping to their customers. PROG incurs no expenses in this model. It's a partner driven, drop ship, DELL model for hardware; ie, no inventory. All PROG does is "count the money". They might as well sell other stuff to internet shoppers who are already in process of loading up their carts. PROG's consensus analyst estimates of $.16 estimates for Q1 and $.85 for the year do NOT factor in hardware sales at all, an easy 10% adder.
NEW PARTNERSHIPS:
Adding hardware is not their only source of growth. PROG recently added another software content vendor, the publisher of Code Wright, as a partner. PROG will function as Code Wright's sole distributor (See Press Release dated: February 11th - Business Wire). If you want to buy Code Wright, PROG is the one that will profit from that purchase. The more of these exclusive partnerships, obviously, the more income. But, PROG has several other exciting channels for growth, namely a powerful new website.
BRICK AND MORTER AND PROG'S NEW WEBSITE:
PROG has primarily been a catalogue company. Which is still good business. PROG incurs no expense to print and mail its catalogue, that serves as a glorified calling card, because PROG's advertisers foot that bill. PROG's new website will increase profits and business. In fact, PROG's new website has contributed to a increase of internet sales growth of 205% (Again, see the Press release dated: February 12th - Business Wire.)
PROG's old web site was too mundane and simply not up to snuff. The new site is user friendly and powerful. Again, the website imporvement is already showing a significant increase in traffic and most importantly, buyers of product. The website will increase profits because the overhead is less than running receivables through the catalogue model. So, PROG, now has a strong INTERNET PRESENCE in addition to its already solid business foundation. More and more of PROG's sales will shift to the internet, increasing margins, and, attracting new customers.
I didn't do a comparison with REAL, like we had discussed, because upon studying REAL, I saw that their spaces of business were very different. REAL is a semiconductor company. PROG has nothing to do with that business. Upon review, I like REAL. REAL is a similar play to PROG, though from another sense: Both earn great money and both are at a "real" value. Frankly, I think it makes sense to have REAL and PROG in one's investment basket. Both could double in the next few months. -Kelly
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