January 4, 2019
Apple’s sudden and unexpected sales warning this week is sending shivers through an already uneasy market. This includes publicly traded channel companies, whose shares generally took a beating on Thursday despite otherwise healthy fundamentals.
Among those whose shares slid Thursday include Arrow, Synnex, Insight Enterprises, CDW, Perficient, Accenture, CACI International and CGI Group Inc. While Apple, whose shares have lost almost 40 percent of their value since October, can’t be held responsible for every tech company’s stock woes, the iPhone maker undeniably sucked investor confidence out of the market when it announced that December quarterly sales would be as much as $9 billion below forecasts.
Shares of Arrow, for one, fell more than 4 percent on Thursday. Synnex slipped nearly as much while Insight, CDW and Accenture all fell between 3 and 4 percent.
While many stocks have taken a beating since October, broader economic indicators including rising interests, slower home sales, global tensions in the Middle East, a trade war with China and the Robert Mueller investigation into the Donald Trump White House were generally seen as why. But Apple’s shortfall suggests there could be trouble brewing inside the tech industry.
This is in stark contrast with what the tech industry has experienced of late. Just two months ago, for example, Arrow enjoyed a modest bounce after it reported robust third quarter earnings. For the period ended Sept. 29, 2018, Arrow reported sales of $7.49 billion, an increase of 9 percent from the year before, and earnings of $177 million, up from $134 million. But the share gains, which peaked in early December, have been largely wiped out.
Similarly, Synnex was hoping for a boost thanks to some late 2018 good news. In mid-December, it raised its guidance for the year. But since then, shares have trended downward, much as they have for the past year. The company’s 52-week high, set one year ago today (Friday) was $141.48. After Apple shares fell 10 percent on Thursday, shares of Synnex stood at $78.20.
Then there’s global IT reseller Insight Enterprises Inc. Back in August, Insight shares hit a yearly high of $56.86. But after Thursday, they dropped to $39.70. Rival CDW, meanwhile, also took a hit on Thursday. CDW shares dropped 2.6 percent to $77.13. For perspective, they topped out for the year at $96.75 just one month ago.
Things weren’t much better at the opposite end of the market. Global tech consultant Accenture took a hit Thursday, falling 3.41 percent on Wall Street. This is just two weeks after reporting a 7 percent jump in sales and a 9 percent spike in earnings for the first fiscal quarter of 2019.
Some companies nimbly avoided Apple’s gravitational pull. Take Perficient, a St. Louis-based IT consultancy and integrator. On Thursday, shares of Perficient dropped less that 1 percent. While they are down roughly a third since mid-September, they have held their own against other tech giants. A deeper diversification into health care, marketing services and new markets have given Perficient investors hope at a time when …
… its own earnings and revenue have remained fairly flat.
While most news this week was grim, there is reason for optimism. Both Perficient and CACI Int., the mammoth IT services provider based in Arlington, Virginia, have entered what Wall Street calls oversold territory. This is determined by the Relative Strength Index (RSI), which is a measure of the average of gains in days that closed up to the average of losses in days that closed down. Both Perficient and CACI are nearing 30, which is one measure that stock pickers use to identify undervalued companies.
Combined with the relatively strong earnings reports of late and the long-term prospects for growth, the channel remains well-positioned, according to many experts. No group of companies is as ideally positioned to help customers implement emerging innovations such as the IoT, fight against the rise in cybercrime or keep pace with industry competition. No wonder Zacks Equity Research ranks the Computer and Technology sector, which includes computer services, among the top 14 percent of all 250 global industries that it follows.
That said, you never know when another Apple could fall from the sky.
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