Ingram Micro Inc. (IM) is Cheap…But for a Reason

…but cheap for a reason

While management is focused on margin improvement, that may or may not materialize.  Execution is a risk and competitive pressures could offset any gains.  Margins are very tight in the industry.  That puts greater pressure to get the integration of acquisitions right, sooner than later.

Australia was and is a challenge for management.  ERP implementation in Australia had more than the usual set of issues associated with it resulting in market share loss.  Australia is historically one of their most important markets, with a significant portion of sales coming from higher margin services business.

In addition to the ERP implementation problems, Ingram Micro may have to undergo a major update of its systems across the globe.  Given the problems with managing an ERP and systems update in one country, the likelihood that problems could arise from doing it across all geographies is high.

Conclusion

While IM’s shares may look relatively cheap, the number of challenges and things that can go wrong along the path to improve profitability and earnings are too many.   Problems with acquisition integration, updating IT infrastructure, a challenging competitive landscape and a still weak European economy could all outweigh any gains made.  Management faces a number of issues and the stock is loaded with execution risk.   The operational issues in Australia are hopefully not indicative of their future performance, but they could be.

The article This Tech Stock is Cheap…But for a Reason originally appeared on Fool.com and is written by Mike Thiessen.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.