Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: Jerry Olson who wrote (58665)	8/31/1999 1:32:00 PM
From: Jenna	Read Replies (1) \| Respond to of 120523

Apex: Undiscovered Small-Cap Gem by Chris Connor Business Apex {APEX} is the leader in server management and console switching technology. The company designs, manufactures and markets stand-alone electronic switching systems and integrated server cabinet solutions for the client/server computing environment. Its console switching systems enable network administrators to manage multiple servers from a single keyboard, video monitor and mouse. The company also offers server cabinet solutions to consolidate and store heterogeneous servers and their related hardware into a single cabinet. Finally, the newest offering from Apex is a unique remote server management product called Emerge 2000. Solid Fundamentals Apex shows impressive growth for a computer hardware company. In fact, analysts project that the company will grow earnings 43.7% per year over the next 5 years. This projected growth rate is above the stock's current PE ratio of around 35. Therefore, a case can be made for Apex as an investment on a valuation basis. To get an idea of what the company has done lately, lets look at its most recent quarter. Net income was $5.1 million - up 41% from $3.6 million in the same period last year. Diluted earnings per share for the quarter were $0.24 compared to $0.17 a year ago. Apex's net sales grew 45% to $26.6 million from $18.3 million in the second quarter of 1998. The company's private-label OEM (original equipment manufacturer) sales as a percentage of total sales increased compared to the past quarter. Second quarter branded sales were $9.6 million or 36% of total sales. Besides charting significant growth, Apex also operates efficiently. Apex's net profit margin and its use of capital would make many software companies envious. Apex has a superb net profit margin of 20%. To get some perspective on this achievement, lets look at the average for Apex's general industry of computer peripherals. The average net profit margin for the computer peripheral industry is a lackluster 3%. A net profit margin of only 3% means that the industry only averages 3 cents in pure profits to every dollar in sales. The S&P 500 average is around 11.5%, so Apex easily beats that average as well. As far as use of capital goes, Apex excels in that arena, too. Its return on equity (ROE) is around 25.6% and its return on assets (ROA) is 24.2%. The 25.6% ROE shows that the company gets about 26 cents in net income for every dollar of investment. The fact that ROE and ROA are so close to one another shows that the company does not have to rely on debt to get great returns on its investments. Competitive Advantages Apex operates so efficiently because it dominates its niche in computer peripherals and has excellent management. Apex can dominate its niche because it provides switching systems to such major OEMs as Compaq, Dell, IBM, and Hewlett-Packard. These four companies make around 43 percent of all PC servers and 66 percent of all "super" servers shipped worldwide. Moreover, Apex has been the sole provider of switches for PC servers to Compaq, Dell, and HP. Apex is also the only single-source manufacturer of file server consolidation systems and sophisticated console switching equipment. As more companies turn to enterprise-wide systems to run day-to-day operations, Apex provides cost and efficiency benefits to its customers with its suite of products that address these needs. As networks proliferate, Apex plans to address the ever-changing space and connectivity needs of today's enterprise companies. Apex's management offers the most compelling reason for an investor to consider investing in the company. Kevin Hafer focuses Apex on customer service which has allowed the company to keep its large customers and dominate its niche market. Hafer, 42, learned about electronics while working on a U.S. Navy destroyer. Hafer then used this knowledge to work as a manager at electronics giant Harris for 10 years. In 1990, as a general manager at Apex Computer, he maintained servers at Microsoft. While there, Hafer saw the need for a more efficient way to manage servers. Microsoft employees were running from server to server to administer Microsoft's own internal network. Hafer figured he could find a way to connect all of them to one monitor and keyboard. In 1992, Hafer engineered a spin-off to pursue the server management market. Hafer then assembled a small team of engineers to design software that enabled one machine to monitor several servers. In its first year, Apex (then called Apex PC Solutions) had sales of $1 million, and, more importantly had a contract with Microsoft. Most importantly, Hafer's hard-nosed approach permeates the entire company. He cuts costs by outsourcing manufacturing to smaller companies while Apex focuses only on assembly, testing, and design. In addition, most sales are closed by fax and phone. As can be seen from the industry margin averages, few CEOs in the computer peripheral industry run their companies as efficiently as Hafer runs his. Investors should view management as a proven competitive advantage for Apex. Investment Summary Apex should show tremendous investment potential. The company is growing well, is highly efficient, and dominates a niche in a dynamic industry. In the short term, the company should continue to attract institutional investors since it was recently added to the S&P 500. Over the long term, this stock should present investors with an opportunity to participate in the future of a possible giant in the computing industry.