BUSINESS
Climb Global Solutions Inc. operates as a value-added information technology (IT) distribution and solutions company in the United States, Canada, Europe, the United Kingdom, and internationally. It operates in two segments, Distribution and Solutions. The company distributes technical software and hardware to corporate and value added resellers, consultants, and systems integrators under the names Climb Channel Solutions and Sigma Software Distribution; and software, hardware, and services under the names TechXtend and Grey Matter. It also resells computer software and hardware developed by others, as well as provides technical services to end user customers.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to be above the cost of capital, CLMB is expected to continue to be a Value Builder.
Climb Global Solutions has a current Value Trend Rating of C (High Neutral).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing very contradictory signals. Climb Global Solutions has a poor Appreciation Score of 30 but a good Power Rating of 85, resulting in the High Neutral Value Trend Rating.
Climb Global Solutions’ stock is selling above targeted value. The current stock price of $59.94 compares to targeted value 12 months forward of $49.
This moderately low appreciation potential results in an appreciation score of 30 (70% of the universe has greater appreciation potential.)
Climb Global Solutions has a Power Rating of 85. (CLMB’s good Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 15% of companies in the universe.)
Factors contributing to this good Power Rating include: the Computers & Software – Wholesale comparison group is in an extremely strong phase currently; and recent price action has been favorable. An offsetting factor is the trend in CLMB’s earnings estimates has been unfavorable in recent months.
INVESTMENT PROFILE
CLMB’s financial strength is high. Financial strength rating is 87.
Relative to the S&P 500 Composite, Climb Global Solutions Inc has neutral Growth/Value characteristics; its appeal is likely to be to investors neutral towards Income; the perception is that CLMB is lower risk. Low financial leverage is a positive for CLMB. Low historical growth is a relative weakness for CLMB. CLMB’s valuation is moderate: moderate dividend yield, moderate P/E ratio, and moderate price/book ratio. CLMB has unusually low market capitalization.
CURRENT SIGNALS
Climb Global Solutions’ current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; falling tax keep rate; and falling leverage.
Climb Global Solutions’ current technical position is mixed. The stock price is in a 2.3 month down move. The stock has declined 19.1% from its prior high. The 200 day moving average is in an uptrend. The stock price is below its 200 day moving average.
ALERTS
. Positive development: the stock rose on very heavy volume. Negative development: negative upside/downside volume developed.
Climb Global Solutions Inc (NASDAQ: CLMB) has benefited from small positive changes in fundamentals: significant quarterly earnings acceleration occurred.
The stock is currently rated C.
On 6/24/24, Climb Global Solutions Inc (NASDAQ: CLMB) stock enjoyed a very large increase of 5.0%, closing at $59.94. Moreover, this advance was accompanied by exceptionally high trading volume at 244% of normal. Relative to the market the stock has been exceptionally strong over the last nine months and has risen 5.0% during the last week.
CASH FLOW
In 2023, Climb Global Solutions generated a very significant increase in cash of +$16.05 million (+79%). Sources of cash were much larger than uses. Cash generated from 2023 EBITDA totaled +$21.71 million. Non-operating uses consumed -$1.87 million (-9% of EBITDA). Cash taxes consumed -$3.04 million (-14% of EBITDA). Re-investment in the business amounted to -$1.35 million (-6% of EBITDA). On a net basis, debt investors received -$1.27 million (-6% of EBITDA) while equity investors contributed +$1.87 million (+9% of EBITDA).
CLMB’s Non-operating Income, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Climb Global Solutions Peer Group. (Since 2021 Non-operating Income, %EBITDA has acccelerated.) In most years, Climb Global Solutions was in the top quartile and lower quartile. Currently, Climb Global Solutions is substantially below median at -9% of EBITDA (-$1.87 million).
CLMB’s Cash Taxes, %EBITDA enjoyed a strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Climb Global Solutions Peer Group. In most years, Climb Global Solutions was in the lower quartile and top quartile. Currently, Climb Global Solutions is at the upper quartile at -14% of EBITDA (-$3.04 million).
CLMB’s Business Re-investment, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Climb Global Solutions Peer Group. In most years, Climb Global Solutions was in the top quartile and lower quartile. Currently, Climb Global Solutions is upper quartile at -6% of EBITDA (-$1.35 million).
CLMB’s Debt Investors, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by a downtrend for the Climb Global Solutions Peer Group. In most years, Climb Global Solutions was in the top quartile and third quartile. Currently, Climb Global Solutions is below median at -6% of EBITDA (-$1.27 million).
CLMB’s Equity Investors, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Climb Global Solutions Peer Group. In most years, Climb Global Solutions was in the second quartile and lower quartile. Currently, Climb Global Solutions is upper quartile at +9% of EBITDA (+$1.87 million).
CLMB’s Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Climb Global Solutions Peer Group. In most years, Climb Global Solutions was in the top quartile and lower quartile. Currently, Climb Global Solutions is upper quartile at +74% of EBITDA (+$16.05 million).
CLMB’s Cash, %Revenue has exhibited a very small overall uptrend over the period. This improvement was accompanied by stability for the Climb Global Solutions Peer Group. In most years, Climb Global Solutions was in the top quartile. Currently, Climb Global Solutions is upper quartile at +10%.
PROFITABILITY
CLMB’s return on equity has improved modestly since 2014. The current level of 15.3% is 1.05X the low for the period and is -2.2% from the high.
CLMB’s very strong negative trend in pretax operating return significantly offset by a very strong positive trend in non-operating factors is a major performance consideration.
The productivity of CLMB’s assets declined over the full period 2014-2024: asset turnover has suffered a very strong overall downtrend.
Partially offsetting this trend, however, pretax margin enjoyed a very strong overall uptrend even as it experienced a very sharp decline after the 2022 high.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
CLMB’s return on equity is at median (15.3%) for the four quarters ended March, 2024.
Operating performance (pretax return on assets) is at the lower quartile (5.4%) reflecting asset turnover that is lower quartile (1.20X) and above median pretax margin (4.5%).
Tax “keep” rate (income tax management) is at the lower quartile (73.3%) resulting in after tax return on assets that is at the lower quartile.
Financial leverage (leverage) is upper quartile (3.90X).
GROWTH RATES
There are no significant differences between Climb Global Solutions’ longer term growth and growth in recent years.
Climb Global Solutions’ historical income statement growth and balance sheet growth have diverged. Revenue growth has fallen short of asset growth; earnings growth has paralleled equity growth.
Annual revenue growth has been -0.8% per year. (More recently it has been 12.5%.)
Total asset growth has been 15.0% per year.
Annual E.P.S. growth has been 10.8% per year. (More recently it has been 27.0%.)
Equity growth has been 8.3% per year. (More recently it has been 14.8%.)
Climb Global Solutions’ consensus growth rate forecast (average of Wall Street analysts) is 10.0% — in line with the average of the historical growth measures.
Relative to the Climb Global Solutions Peer Group, Climb Global Solutions’ historical growth measures are erratic. Total asset growth (15.0%) has been at the upper quartile. E.P.S. growth (10.8%) has been slightly above median. Equity growth (8.3%) has been above median. Revenue growth (-0.8%) has been lower quartile.
Consensus growth forecast (10.0%) is at the upper quartile.
PRICE HISTORY
Over the full time period, Climb Global Solutions’ stock price performance has been variable and quite good. Between August, 2013 and June, 2024, Climb Global Solutions’ stock price rose +372%; relative to the market, this was a +41% gain. Significant price moves during the period: 1) January, 2021 – May, 2022: +108%; and 2) March, 2020 – June, 2020: +101%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 24.2% is above median relative to the S&P 500 Composite.
In addition to being above median relative to S&P 500 Composite, current annual total return performance through May, 2024 of 24.2% is slightly above median relative to Climb Global Solutions Inc Peer Group.
Current 5-year total return performance of 41.1% is upper quartile relative to the S&P 500 Composite.
Through May, 2024, with upper quartile current 5-year total return of 41.1% relative to S&P 500 Composite, Climb Global Solutions’ total return performance is upper quartile relative to Climb Global Solutions Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, CLMB’s overall valuation is low. The highest factor, the price/equity ratio, is slightly above median. Price/earnings ratio is at median. Ratio of enterprise value/earnings before interest and taxes is at the lower quartile. Ratio of enterprise value/assets is at the lower quartile. The lowest factor, the ratio of enterprise value/revenue, is lower quartile.
Relative to Climb Global Solutions Peer Group, CLMB’s overall valuation is high. The highest factor, the price/equity ratio, is at the upper quartile. Price/earnings ratio is at the upper quartile. Ratio of enterprise value/revenue is at the upper quartile. Ratio of enterprise value/earnings before interest and taxes is above median. The lowest factor, the ratio of enterprise value/assets, is at median.
Climb Global Solutions has a very large value gap compared to the median valuation. For CLMB to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 0.77X to 0.52X. If CLMB’s ratio of enterprise value/revenue were to fall to 0.52X, its stock price would be lower by $-20 to $40.
For CLMB to fall to lower quartile valuation relative to the Climb Global Solutions Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 0.77X to 0.40X. If CLMB’s ratio of enterprise value/revenue were to fall to 0.40X, its stock price would decline by $-29 from the current level of $60.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to be above the cost of capital, CLMB is expected to continue to be a Value Builder.
Climb Global Solutions’ current Price Target of $59 is little changed from the current price of $58.84.
This moderately low appreciation potential results in an appreciation score of 30 (70% of the universe has greater appreciation potential.)
Notwithstanding this moderately low Appreciation Score of 30, the high Power Rating of 85 results in an Value Trend Rating of C.
Climb Global Solutions’ current Price Target is $59 (+59% from the 2023 Target of $37 and +1% from the 05/03/24 price of $58.84). This dramatic rise in the Target is the result of a +21% increase in the equity base and a +31% increase in the price/equity multiple. The forecasted increase in return on equity has a very large positive impact on the price/equity multiple and the forecasted increase in growth has a slight positive impact as well. Partially offsetting these Drivers, the forecasted increase in cost of equity has a very large negative impact.
PTR’s return on equity forecast is 16.6% — slightly above our recent forecasts. Forecasted return on equity erratic but little changed between 2015 and 2023. The current forecast is well above the 2018 low of 10%.
PTR’s growth forecast is 19.0% — slightly above our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is significantly above the 2020 low of 3%.
PTR’s cost of equity forecast is 12.0% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2015 and 2023. The current forecast is above the 2017 low of 8.5%.
At Climb Global Solutions’ current price of $58.84, investors are placing a positive value of $28 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 16.0% per year, and a return on equity of 13.1% versus a cost of equity of 10.3%.
PTR’s 2025 Price Target of $59 is based on these forecasts and reflects an estimated value of existing assets of $32 and a value of future investments of $27.
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