Why PC Connection stock is on investors’ radar

PC Connection (CNXN) has attracted attention after recent share price moves, with the stock last closing at $72.22. That puts fresh focus on how its current valuation lines up with fundamentals.

Recent momentum has been strong, with a 1-day share price return of 1.05%, a 7-day return of 8.54% and a 30-day move of 12.32%, sitting alongside a 12.12% 1-year total shareholder return and 60.38% over five years.

If this kind of steady progress interests you, it can be useful to see what else is gaining traction in the market, starting with the 20 top founder-led companies

With PC Connection trading at $72.22 and sitting at a discount to a US$76 analyst price target and a modelled intrinsic value, the question for you is simple: is this a mispriced opportunity, or is the market already assuming stronger growth ahead?

Price-to-Earnings of 20.8x: Is it justified?

On a headline measure, PC Connection trades on a P/E of 20.8x, which sits above its peer average of 17.9x, even though the share price is $72.22.

The P/E ratio links what you pay today to the earnings the company currently generates, so a higher P/E often reflects the market pricing in stronger or more reliable profit streams.

For PC Connection, the current valuation is described as expensive versus similar peers on 17.9x, and also slightly rich compared with an estimated fair P/E of 20.3x that our model suggests the market could move toward over time.

Against the broader US Electronic industry average P/E of 33.7x, however, PC Connection screens as lower priced, which indicates the premium is specific to its closer peer set rather than the whole sector.

Result: Price-to-Earnings of 20.8x (OVERVALUED)

However, this picture could change if IT spending softens or if margins come under pressure across PC Connection’s Enterprise, Business, or Public Sector segments.

Another view: DCF points in the opposite direction

While the P/E of 20.8x suggests PC Connection is a bit expensive versus peers, the SWS DCF model paints a very different picture. With the stock at $72.22 and an estimated future cash flow value of $171.19, it screens as heavily undervalued. Which signal do you put more weight on?

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 46 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Seeing mixed signals on valuation and sentiment so far? If you want to move quickly and decide for yourself, start by reviewing the 3 key rewards

Looking for more investment ideas?

If PC Connection has caught your attention, do not stop here. Broaden your watchlist now so you are not relying on a single story.

• Target potential bargains early by scanning companies flagged as 46 high quality undervalued stocks before other investors pay attention.
• Prioritise resilience by reviewing stocks in the 63 resilient stocks with low risk scores and focus on businesses with lower overall risk profiles.
• Hunt for future standouts by checking the screener containing 22 high quality undiscovered gems and spot quality stocks that are still off most investors’ radar.

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.