Alert: 48% Upside on Under-the-Radar Tech Stock

Investment Alert: Buy Climb Global Solutions (CLMB) Under $50/share

Disclaimer: Investment Alerts have a medium to long-term time horizon. These do not constitute financial advice and you should contact a financial advisor before deciding whether it is appropriate for your individual circumstances.

Climb Global Solutions doesn’t have the name recognition associated with high-flying technology stocks like Netflix, Microsoft, or Apple, but it’s worth a close look if you like buying stocks on sale.

In the last three quarters, revenues have been accelerating. Year-over-year growth has powered higher by 10.7% in Q3 2022, 17.7% in Q4 2022, and 19.2% in the most recent quarter.

But there’s lots more to like under the hood than fast growing revenues, so is Climb Global Solutions a buy?

Key Points

  1. Revenue growth has been accelerating at Climb Global and the company’s return on invested capital beats its peers.
  2. CLMB valuation is compelling with significant upside to fair value.
  3. The company also offers a favorable dividend and has had tremendous price momentum in recent months. 

Get To Know Climb Global

Climb Global stumbled upon our radar when we discovered it had surged by 25.1% over the past 3 months. Why had this leading provider of cloud-based software solutions skyrocketed.

Let’s get to know Climb first:

CLMB is an IT company that provides distribution and cloud technology solutions. It has various operating segments: Climb, Grey Matter, and Cloud Know How.

  • Climb is a specialty technology distributor focused on emerging data center and cloud-based products, delivering software and hardware to corporate resellers, value added resellers (VARs), consultants, and systems integrators around the world.
  • Grey Matter US is a value-added reseller of software, hardware, and services for U.S. and Canadian corporations, government organizations, and academic institutions.
  • Grey Matter UK is a software reseller and cloud service provider devoted to helping Developers, ISVs, and tech-led companies succeed.
  • Cloud Know How is a technical services team of cloud adoption and migration specialists, supporting all aspects of cloud adoption.

Impressive Financials

Beyond its impressive quarterly financial growth, the company’s annual growth has shined over the past five years too with year-over-year top line up as follows:

  • 2018: $181.4M, up 13.0%
  • 2019: $208.8M, up 15.1%
  • 2020: $251.6M, up 20.5%
  • 2021: $282.6M, up 12.3%
  • 2022: $304.3M, up 7.7%

That top line growth has translated to fast-growing operating income too. In 2020, EBIT came in at $6.8M and jumped almost 100% to $12.1M in 2021 and further to $17.9M last year.

It’s no surprise the company’s financials are looking well given how efficiently the company is run. For comparison, the return on invested capital is 22.2% versus peers at 14.0% and the sector average of 5.3%.

With a P/E of 17x, the company is not trading at a particularly elevated earnings multiple either relative to near term growth, in spite of its share price rise over the past quarter. Indeed, when we ran a valuation analysis, it seemed downright compelling.

A 5 year discounted cash flow forecast analysis placed fair value at $74 per share, around 48% higher than where the share price currently resides.

Only 1 analyst covers the stock and has a $60 price target on the stock, which would translate to a 20% hike if realized.

Another minor plus in favor of the company is its 1.38% dividend and 22.8% payout ratio, suggesting there is ample room to increase the shareholder payout if management wishes.

The bottom line is Climb Global has lots of upside, accelerating revenues, trades at a reasonable P/E relative to earnings growth and a reasonable dividend.