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US69318J1007HardwareElectronics & Computer Distribution

Last update on 2024-06-07

PC Connection (CNXN) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

PC Connection (CNXN) Piotroski F-Score analysis for 2023 reveals 6/9 score, indicating moderate financial strength. Evaluate performance using 9 key criteria.

Knowledge hint:
The Piotroski F-Score is a number between 0 to 9 which reflects the strength of a company's financial position. It is based on 9 criteria involving profitability, liquidity, and leverage. This model helps investors identify stocks that are strong, undervalued investments.
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Short Analysis - Piotroski Score: 6

We're running PC Connection (CNXN) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Criteria
Company has a positive net income?
1
Company has a positive cash flow?
1
Return on Assets (ROA) are growing?
0
Operating Cashflow are higher than Netincome?
1
Leverage is declining?
1
Current Ratio is growing?
1
Number of shares not diluted?
0
Cross Margin is growing?
1
Asset Turnover Ratio is growing?
0

The Piotroski F-Score is a financial scoring model ranging from 0 to 9 that evaluates a company’s financial health based on nine criteria, covering profitability, liquidity, and leverage. PC Connection (CNXN) attained a score of 6, indicating a generally positive but somewhat mixed financial position. Positive aspects include consistent net income, robust positive cash flow, a growing current ratio, decreasing leverage, and increasing gross margin. However, there are concerns, such as declining return on assets (ROA), dilution of shares, and suboptimal asset turnover ratios over recent years.

Insights for Value Investors Seeking Stable Income

With a Piotroski F-Score of 6, PC Connection (CNXN) demonstrates commendable financial health and strength, particularly in profitability and liquidity areas. However, potential investors should be cautious of some red flags like declining asset efficiency and share dilution. Overall, CNXN appears to be a reasonable investment but warrants further scrutiny and due diligence on aspects like ROA and asset turnover before committing to a purchase.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of PC Connection (CNXN)

Company has a positive net income?

Net income reflects the profitability of a company. It is vital to consider as a positive net income signifies the company is generating profit after all expenses and taxes have been deducted. A consistent positive net income is indicative of a company's financial health and profitability over time.

Historical Net Income of PC Connection (CNXN)

PC Connection (CNXN) has reported a net income of $83,271,000 in 2023, which is positive. Over the past 20 years, the company's net income has shown a generally upward trend, with occasional dips such as in 2009 (-$1,222,000), but overall displaying resilience and recovery. This indicates a positive trend in profitability and thus, for this criterion, CNXN earns 1 point. The upward trajectory in recent years, including the 2023 figure, underscores the firm’s operational strength and robust financial health.

Company has a positive cash flow?

Cash Flow from Operations (CFO) represents the cash a company brings in from its core business activities. Positive CFO indicates good liquidity and operational efficiency.

Historical Operating Cash Flow of PC Connection (CNXN)

For 2023, PC Connection's CFO is $197,954,000, which is positive. This strong positive CFO is indicative of a highly positive cash contribution from operating activities. Based on the Piotroski F-Score's first criterion, a positive CFO results in 1 point. Analyzing the 20-year trend, CFO has fluctuated but there’s appreciable improvement in the later years, especially the significant boost in 2023. The trend demonstrates rising operational success and gestion, suggesting a positive outlook.

Return on Assets (ROA) are growing?

This criterion compares the Return on Assets (ROA) from one year to the next to determine if the company is improving in terms of profitability and efficiency. ROA measures how effectively a company is using its assets to generate earnings.

Historical change in Return on Assets (ROA) of PC Connection (CNXN)

In 2022, PC Connection had an ROA of 0.0817, and in 2023, the ROA has decreased to 0.0728. This indicates a decline in profitability and efficiency in using its assets to generate earnings, leading to a lower point in this criterion. We set this criterion to 0. Historically, PC Connection has shown fluctuations in ROA, with notable negatives in years like 2010 (-0.079) and slower year-on-year gains compared to the industry median, which has remained relatively stable around 0.11 - 0.13 for the last decade. The sustained outperformance of industry medians indicates that PC Connection's performance weakness might be more cyclical or specific company-related than an industry-wide trend. Overall, this declining ROA is a point of concern.

Operating Cashflow are higher than Netincome?

Operating cash flow, a direct measure of cash being generated by the core business operations, compared to net income can indicate the quality of earnings. If operating cash flow exceeds net income, it suggests that the earnings are being backed by actual cash flow, reducing the reliance on accrual accounting. This solidifies financial health.

Historical accruals of PC Connection (CNXN)

For the fiscal year 2023, PC Connection reported an operating cash flow of $197.954 million compared to a net income of $83.271 million. This substantial difference highlights that the company's core business operations are generating significant cash, which is reassuring because it suggests that net income is supported by real cash flow. This trend over the 20-year data shows a steady increase and stabilization in operating cash flows, particularly in recent years. In contrast, there are fluctuations in net income, but overall, this criterion signals a green flag and accounts for a positive point in the Piotroski Score. Hence, 1 point is awarded for this criterion.

Liquidity of PC Connection (CNXN)

Leverage is declining?

The criterion for change in leverage examines if the company's leverage ratio (total debt to total assets) has decreased from the previous year.

Historical leverage of PC Connection (CNXN)

The leverage ratio for PC Connection (CNXN) has shifted from 0.0045 in 2022 to 0.0027 in 2023. This denotes a significant reduction in leverage, which marks a downward trend. Observing the data from the past two decades, the leverage has considerably declined from 0.0197 in 2003, demonstrating consistently improving financial stability. However, because our criterion is met when the leverage decreases year-over-year, CNXN earns 1 point in this assessment. This trend is generally positive, indicating that the company is less reliant on debt, potentially reducing financial risk.

Current Ratio is growing?

The Current Ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations. It compares a company’s current assets to its current liabilities.

Historical Current Ratio of PC Connection (CNXN)

For PC Connection (CNXN), the Current Ratio has increased from 3.0716 in 2022 to 3.1974 in 2023, leading to an additional point in the Piotroski score. This upward trend indicates an improving liquidity position. Comparing these ratios historically, CNXN's Current Ratio has consistently outperformed the industry median. In 2023, CNXN's Current Ratio of 3.1974 significantly exceeds the industry median of 2.2534, illustrating stronger short-term financial health relative to peers. Historically, CNXN's Current Ratio has remained above 2.0 since 2011, further underscoring its robust liquidity over the long term.

Number of shares not diluted?

The change in shares outstanding assesses whether the company has issued or bought back shares over the period. This is crucial as issuing more shares can dilute the value of existing shares, whereas buybacks can indicate the company's confidence in its own financial health.

Historical outstanding shares of PC Connection (CNXN)

For PC Connection (CNXN), the outstanding shares have increased from 26,279,000 in 2022 to 26,287,000 in 2023. According to the Piotroski Score, an increase in outstanding shares results in no points being added for this criterion. This trend is generally seen as negative since it can indicate potential dilution of shareholders’ equity. Examining the last two decades of data, shares outstanding have oscillated, with notable increases from 25,114,000 in 2003 to 26,287,000 in 2023. The most significant spikes were observed between 2006 (25,731,000) and 2007 (27,024,000), with fluctuations stabilizing around 26,000,000 in recent years. With an evident long-term upward trend in shares outstanding, this criterion yields a score of 0, reflecting potential shareholder dilution.

Operating of PC Connection (CNXN)

Cross Margin is growing?

Gross margin is a company's net sales revenue minus its cost of goods sold, divided by net sales revenue, expressed as a percentage. This metric indicates how efficiently a company is producing its goods compared to its competitors and is crucial for assessing profitability.

Historical gross margin of PC Connection (CNXN)

The Gross Margin for PC Connection (CNXN) has increased from 0.1684 in 2022 to 0.1795 in 2023, adding 1 point to the company's score. This increase suggests improved profitability and cost management. Over the last 20 years, CNXN's Gross Margin has shown an upward trend, outpacing the industry median for most of this period. In 2023, the industry median Gross Margin stood at 0.14, significantly lower than CNXN's margin. The company's consistent improvement indicates enhanced operational efficiency and competitive advantage. The rising Gross Margin aligns with positive strategic maneuvers, thus making it a favorable trend for the Piotroski Analysis.

Asset Turnover Ratio is growing?

Asset Turnover measures a company's efficiency in using its assets to generate sales. Higher ratios indicate better performance.

Historical asset turnover ratio of PC Connection (CNXN)

Comparing the asset turnover ratio of PC Connection (CNXN) for the years 2022 and 2023, we observe a decline from 2.8628 in 2022 to 2.4916 in 2023. This indicates that the company was less efficient in utilizing its assets to generate sales over the past year. Looking at the data over the past 20 years, there is a noticeable long-term decline from a high of 4.9078 in 2007 to the current ratio of 2.4916. This trend is not favorable for the criterion of increasing asset turnover. Therefore, the score for this criterion would be 0, emphasizing a need for the company to optimize its asset usage to boost sales efficiency.


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