Today, the Dicker Data share price is up 12% after the IT distribution company reported revenue of $1.72 billion and year to date (9 months) profit before tax of $76.6 million. This implies 3rd quarter profit before tax of $30.7 million. Importantly, the company says that even excluding the contribution from the recently acquired Exeed business, “total revenue was $1.655.2m, up 11.7% on PCP and net profit before tax at $74.7m, up 22.9% on PCP.”
This is great news for shareholders, because it suggests the company is still finding strong organic revenue growth, which translates into even higher profit growth due to excellent cost efficiency and operating leverage.
One risk is that “Supply constraints are predicted to continue for the foreseeable future,” but the company is attempting to manage this situation, and in any event, it’s better to have supply constraints than weak demand, given the operating leverage in the business. Happily, the company says that “we are experiencing increased stock allocations across a large number of categories, improving the overall health of the supply chain.”
Margins improved in the third quarter, with the year to date (9 months) gross margin now sitting at 9.6%, compared to 9.3% in the first half.
Even though shortages may crimp sales, the company says it is “experiencing strong demand with a backlog of orders to fulfil and as supply improves”, and it expects to meet that demand in the quarter to December, at the least.
While the share price is up today on the back of these results, you could argue it has merely recovered from the significant drop to $12.50, arising from the Motley Fool Sell Recommendation which in turn cited the founder selling some shares, as one reason for selling. Amusingly, David Dicker responded that he sold the shares to buy a jet and build more racing cars.
For more on the company, you can see all our Dicker Data coverage here.
If we annualise this latest quarterly profit before tax, we get $122.8 million. If we apply a 30% tax rate we get $86 million. After the 12% share price bump today, to $14.80, the market capitalisation is about $2.56 billion, putting it on an estimated forward P/E multiple of about 30, based on annualising this record quarter. However, this might be a tad conservative since Exeed only made a 2 month contribution to this quarter. I have no strong view on the valuation at these prices, and I’m not a buyer at current prices (though I have a long term holding).
Nothing in today’s update changes the long term thesis though I was heartened to see recent on market share purchases by a few different directors.
Please remember that these are personal reflections about a stock by author. I own shares in Dicker Data but won’t sell any in the next 2 days. This article should not form the basis of an investment decision. It is an investment diary valuable only for the cognitive process it demonstrates. We do not provide financial advice, and any commentary is general in nature. Please read our disclaimer.
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