Assessing PC Connection (CNXN) Valuation After Recent Share Price Weakness

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PC Connection (CNXN) has drawn attention after a period where the share price shows mixed returns, including a 2.4% decline over the past day and a 6.3% decline over the past month.

See our latest analysis for PC Connection.

Putting that in context, the recent 1-day and 30-day share price declines sit against a roughly flat year to date share price return and a positive multi year total shareholder return. This suggests momentum has cooled, but long term holders have still seen gains.

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So with the share price roughly flat year to date, recent declines, a value score of 4 and shares trading below some analyst estimates and intrinsic value models, is there a buying opportunity here, or is the market already pricing in future growth?

PC Connection currently trades on a P/E of 17.2x, which screens as more expensive than its immediate peer average but cheaper than the broader US Electronic industry.

The P/E ratio compares the company’s share price with its earnings per share, so a higher figure typically reflects the market paying more today for each dollar of current earnings. For an IT solutions provider like PC Connection, this often links back to how durable investors think its earnings are and how they view the quality of its cash flows.

Here, the picture is mixed. On one hand, PC Connection is described as having high quality earnings and profit growth of 6.8% per year over the past five years, with earnings expected to grow further, albeit not at very high rates. On the other hand, earnings fell over the past year and its 1 year share price return lagged both the US Electronic industry and the broader US market, which suggests the market is cautious about paying a premium for near term performance. Against this backdrop, a P/E above the 15.1x peer average can look full, even if it remains below both the 28.8x industry average and the 19.7x fair P/E level that the regression based fair ratio points to as a potential anchor.

Compared with the US Electronic industry average P/E of 28.8x, PC Connection’s 17.2x looks materially lower, which may appeal to investors who want sector exposure without paying the highest multiples. At the same time, comparing 17.2x to the estimated fair P/E of 19.7x suggests some room for the valuation to move closer to that fair ratio level if the earnings story stabilises.

Explore the SWS fair ratio for PC Connection

Result: Price-to-earnings of 17.2x (ABOUT RIGHT)

However, there are still clear risks, including the 6.8% 1‑year total return decline and earnings that fell over the past year, which could keep sentiment fragile.

Find out about the key risks to this PC Connection narrative.

While the 17.2x P/E points to a valuation that looks about in line with the fair ratio, the SWS DCF model presents a different perspective. With the share price at $57.14 and an estimated future cash flow value of $117.83, the model suggests PC Connection could be trading at a large discount. This raises a simple question: is the market being too cautious, or is the model too optimistic?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out PC Connection for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 62 high quality undervalued stocks. If you save a screener we even alert you when new companies match – so you never miss a potential opportunity.

Given the mixed signals so far, it makes sense to look directly at the numbers and decide where you stand before the market moves on. To see what the positive factors look like in detail, check out the 2 key rewards.

The story does not end with a single stock. If you stop here, you could miss other opportunities that fit your goals and risk comfort better.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include CNXN.

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