Datalink (DTLK) is basking in the glow of an excellent recent quarter where the company came in ahead of the Zacks Consensus Estimate on top and on bottom. Today it is the Bull of the Day as a Zacks Rank #1 (Strong Buy).
If The Thunder Clouds Start To Rain
Much has been made of companies that assist with storage on the cloud. There are now even commercials that are pushing consumers to have their own private cloud (storage space that is accessible on the internet). The idea here is that data demands continue to increase as pictures get larger, documents get richer and video transfer eat up more storage space.
Datalink is a data center solutions provider to mid and large-size companies. It is involved in assessing, designing, deploying, managing, and supporting unified infrastructures, such as servers, storage, and networks. Datalink provides its solutions through direct sales force in the United States. The company was founded in 1958 and is headquartered in Eden Prairie, Minnesota.
The company has beaten the Zacks Consensus Estimate in four of the last five quarters that Zacks has had a consensus estimate. There was one quarter, the December 2012 quarter, that there was no bottom line estimate, however, there was a topline estimate and the company was able to post a significant positive revenue surprise in the quarter.
The story behind DTLK seems to be that the company missed the September 2013 quarter in a big way. They reported $0.08, when the Zacks Consensus Estimate was calling for $0.19 so an $0.11 miss or a 57% negative earnings surprise. The company also missed on the topline as well. As a result of the misses, the stock dropped nearly 22% in the session following the release.
One quarter later, the company seems to have righted the ship. They reported a beat of $0.04 as the company earned $0.29 in the December 2013 quarter.
Earnings Estimates Moving Higher
Estimates for 2014 have been moving much higher of late. After being pinned at $0.45 for October, November and December of 2013, analysts started raising their estimates. In January of 2014, the Zacks Consensus Estimate kicked higher to $0.56 and then leapt higher to $0.74 in February. That is just the kind of earnings estimate increase that will turn a stock from a Zacks Rank #3 (Hold) to a Zacks Rank #1 (Strong Buy)!
The valuation for DTLK is not exactly a rich one, but in comparison to the industry average, we do see it trading at a premium on the more commonly leaned on metrics. The trailing PE of 20x is well above the 12.5x industry average, while the forward PE of 19.8x is only slightly better than the 12x industry average. Price to book comes in at a discount to the industry average with a 2.3x multiple compared to 4x and the price to sales multiple of 0.6x also compares favorably to the 2.6x industry average.
The price chart and consensus chart is something that we developed at Zacks to help investors see how the earnings estimates have impacted the stock price over time. The chart here shows that the stock and earnings estimates took a significant hit when the company missed, but they have also seemed to get back on track. This stock is certainly worth keeping your eye on going forward.
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.
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