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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Shane M who wrote (4158)	5/26/1998 7:17:00 PM
From: Michael Burry	Respond to of 78525

Two interesting interviews with Marty Whitman: cbs.marketwatch.com cbs.marketwatch.com

To: Shane M who wrote (4158)	5/26/1998 11:08:00 PM
From: Michael Burry	1 Recommendation Read Replies (2) \| Respond to of 78525

Re: CDWC I buy from CDW and Computability primarily. I am not sure that CDW qualifies as a Buffett stock. The high ROE to me looks the result of it being a new market with few competitors. The competition is heating up. No doubt, CDW is one of the leaders, but I don't think the business economics add up to any kind of guaranteed longevity and sustainable high ROE. So it's not a Buffett stock, IMO. Is it a value stock? Well, it's still growing pretty significantly. Looks like a stock that has been creamed, but both the industry and its leading position in that industry will continue to increase sales. So the PSR's less than 0.7, and sales are growing 30%. Turns its inventory 20 times/year. I noticed that they are chronically out of stock of many products, which limits next-day delivery, but allows easier inventory management. As long as it doesn't turn the customer off - they lost my Sony monitor buy because it wasn't in stock - and overall it doesn't seem to. FINANCIAL INFORMATION Percentage of Net Sales Three Months Ended March 31, ---------------------------- 1998 1997 -------- -------- Net sales 100.0 % 100.0 % Cost of sales 87.2 86.6 ---- ---- Gross profit 12.8 13.4 Selling and administrative expenses 6.7 7.4 --- --- Income from operations 6.1 6.0 Other income, net 0.3 0.3 --- --- Income before income taxes 6.4 6.3 Income tax provision 2.6 2.5 --- --- Net income 3.8 % 3.8 % === === OPERATING STATISTICS Three Months Ended March 31, ------------------------ 1998 1997 -------- -------- Number of orders shipped 578,249 445,181 Average order size $ 665 $ 669 Customers serviced 229,000 200,000 Number of account managers, end of period 476 329 Inventory turns 20 20 I see a business that looks well-run, controlling costs, at the forefront of its business. Creative and MicroWarehouse are struggling. Insight is the closest direct competitor I can find, but it does nowhere near as well at controlling costs. That its margins are less when it charges more for the same products is also notable. THREE MONTHS ENDED MARCH 31, --------- 1998 1997 ------ ------ Net sales ..................................... 100.0% 100.0% Costs of goods sold ........................... 87.7 87.2 ------ ------ Gross profit ......................... 12.3 12.8 Selling, general and administrative expenses ................................. 8.7 9.5 ------ ------ Earnings from operations ............. 3.6 3.3 Non-operating income (expense), net ........... (0.2) 0.1 ------ ------ Earnings before income taxes ......... 3.4 3.4 Income tax expense ............................ 1.3 1.3 ------ ------ Net earnings ......................... 2.1% 2.1% Then again, Insight's PSR is 0.4 and it's also growing, even faster than CDW. It too turns its inventories >20 times. I would think that an investment in CDW is a bet that it will keep growing its sales and that it will maintain its margins, or at least stay profitable while the others sink. Looks like Wall Street is betting that slow PC demand will crimp those margins and the growth as well. Still CDW is the leader. Of all of em, I'd buy CDW because it looks like management has been doing a good job and as Dell proved management in these kinds of businesses may be everything. CompUSA just seems to have the wrong model. Thanks for bringing it up. Goes on my watch list, but I'd want to buy it at more like 1/2 sales in this market. Mike