There is no doubt about the fact that PC makers are struggling to sell their products, as a result of the growing popularity of mobile devices. With the industry in turmoil, many PC hardware manufacturers are in serious trouble. However, there is one Asian manufacturer that is easily outpacing the industry in terms of growth. Lenovo has been performing very well despite weakness in the broader market, which is impressive to say the least.
Lenovo, listed on the Hong Kong Stock Exchange, but based in the United States, produces desktops, laptops, and a range of other IT products and accessories. The stock has a market cap of about $9.4 billion and is up some 6.5% in the last twelve months. The stock yields around 2.1%, and has a beta of 1.64. The company has roughly 27,000 employees and markets its products in over 160 countries worldwide.
Latest Earnings Report
Lenovo really knocked it out of the park for the latest quarterly report, with record income, sales and market share. Sales came in at $9.4 billion, up 12% from the period a year earlier. Global PC shipments grew 7.9%, in a global market that was down 7.8%, the 15th consecutive quarter of outpacing the industry. The company moreover achieved its highest ever market share of 15.9%, gaining in every region.
The company’s “protect and attack” strategy, in which it tries to strengthen its solid markets and at the same time attempts to take advantage of new opportunities, is clearly paying off. Net income of $205 million represented an increase of 34%, with operating profit increasing by 26%. Geographically, China is still growing quickly with a 17% increase in sales. The company also performed well in North America, with PC shipments up 11% in a market which dipped by 7%.
The firm made a number of strategic acquisitions lately to solidify its position, after announcing a strategic partnership with EMC to create a server technology development program. Recently, the company acquired CCE, a Brazilian PC and electronics company, in order to boost its position in this important market. It also bought Stoneware, a US cloud computing company. Aside from a being a sign of the firm’s health, these acquisitions should aide Lenovo in staying ahead of the competition in terms of growth.
Outpacing the Competition
Other PC makers haven’t nearly been delivering the same kind of growth that Lenovo is achieving at the moment. Dell Inc. (NASDAQ:DELL) recently came out with a fairly dismal earnings report, with a 9% decline in PC sales and a disastrous drop in earnings. The company, currently battling out a takeover attempt, has been suffering from poor sales results for a while now, and is at the moment considering a renewed focus on its Enterprise Solutions business which has been performing quite well.
Hardware manufacturer Hewlett-Packard Company (NYSE:HPQ) pulled a classic beat and raise on Wednesday, but the Personal Systems segment still remains very problematic. Revenue in this segment declined a steep 20%, made worse by an unfavorable comparison with the same period last year. Margins also declined in this division, and results were actually worse than the company expected. In fact, revenue was down in most segments, but the company’s earnings beat of $0.05 and the improved outlook were enough to send shares up a whopping 12% following the report.
Valuations and Metrics
For the kind of growth the company is consistently delivering, Lenovo stock isn’t too expensive at the moment. The stock currently trades at 16.84 times trailing earnings, which is a bit of a premium to the industry, but this seems reasonable for the only PC maker that seems to be growing the business at the moment. The price to sales of 0.29 is also very low, whereas the return on equity of 22.81% is good. The company furthermore only has around $321 million in debt, and nearly $4.5 billion in cash on the balance sheet.
The Bottom Line
In an extremely tough environment for PC makers, with sales down in virtually every geographic region, there is one company that is bucking the trend. Lenovo is consistently delivering excellent growth, outpacing the industry and beating expectations. Despite this fact, the stock is still trading at a reasonable multiple, although slightly above the industry average. With such a strong outperformance, the company seems like a good bet.
The article One PC Maker Is Blowing Away the Competition originally appeared on Fool.com.
Daniel James has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Daniel is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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