Low margins don't mean low absolute profits
Wholesaling is a low-profile, low-profit margin business. Unless you are a corporate customer or a competitor, you may never hear much about some pretty major corporations that distribute enormous amounts of good and services.
Ingram Micro (IM, Financial) probably falls into that category for most retail investors despite almost $45 billion in projected 2014 revenues. They serve all the largest names in computers and electronics through service centers scattered throughout the world.
There is a lot of good news regarding Ingram Micro that is not reflected in the current quote. EPS grew from $1.73 in 2011, to $1.94 in 2012 and an all-time record $2.36 last year. Value Line sees $2.55 on tap for 2014 and $3.04 in EPS during 2015. Zacks’ estimates are a few cents higher for both years.
IM touched $31 in April but had settled down to below $26 on Monday as the market pulled back. That leaves IM selling for just under 10.2x this year and about 8.5x the company’s 2015 estimates. Both numbers are a discount to Ingram’s 11.0x median multiple over the past decade.
Value seekers with reasonable time horizons, who bought near the lows in 2011 and 2012, could have locked in 100% gains early this year when enthusiastic momentum chasers were willing to pay more than 13x trailing earnings. If you waited until 2013's nadir to buy, you still had a shot at an 82%, 1-year profit.
Owning IM outright could easily lead to at least 25%-30% gains over the next 12-months. It would only take a regression to a normalized 11x P/E to see Ingram Micro rise to $33-$34. A jump back to the previous peak valuations could take the shares as high as $35-$38.
Short-term volatility makes for good option premiums. On Monday afternoon I was able to sell some March 2015, $25 puts for $1.25 per share. The worst-case scenario would force me to buy IM shares at a net cost of $23.75 ($25 strike price-$1.25 option premium).
That would be far from scary. Selling those puts committed me to potentially owning stock in a good quality company within pennies of its 2014 low.
If Ingram Micro holds at $25, or above, on the March 20, 2015, expiration date, the puts will expire worthless. Option sellers will keep 100% of all premium dollars received without having to buy any IM shares.
Ingram Micro's huge global footprint and small profit margins make for an incredible business moat. Nobody new is likely to enter this enormous volume market due to the high cost of admission.
Note: Long time GuruFocus readers had actually previously learned of this company in my August 2012, article when IM was offered for $15.21, and again in my Valentine's Day 2013, article recommending IM at $18.47. A Global Leader at a Bargain Price.
I sold both batches of IM shares above $30, five months ago, which was noted here on Guru Focus at the time as well. http://www.gurufocus.com/forum/read.php?1,254792,254792
Disclosure: Short IM March 2015, $25 puts
