This Stock Could Jump 65% Thanks to a Market Miscalculation

Every single day, investors overreact to bad news. Sometimes individual stocks fall after poor earnings reports. Sometimes the entire market dips on bad macroeconomic news.

That might not matter much if it’s a small swing, or if the stock in question is doesn’t have great long-term prospects.

But when it’s a company that 1) has a strong track record and solid projections, 2) is tapped into major growth sectors like cloud services, the Internet of Things, and artificial intelligence, and 3) is massively undervalued, then it’s a perfect opportunity to make some serious money on the market’s mistake.

That’s the case with the small-cap stock we’re bringing you today.

It’s one of the world’s top providers of technology products, including barcode, point-of-sale, security, and cloud services.

In spite of this company’s solid fundamentals, investors scrambled for the exits last month, pushing shares down more than 20% in eight trading days.

Perhaps the plunge was in anticipation of a weak earnings report, which came out a few days after the share price started to fall.

And yes, the company did miss earnings estimates…

By one cent.

Investors who sold on that news absolutely missed the bigger picture.

Earnings were still 13% higher than the same quarter a year ago. And if projections hold up, the 2019 fiscal year (ending in June) will be the sixth straight year of higher sales and earnings per share (EPS).

The drop in share price was more than just an overreaction by skittish investors. In fact, this stock was undervalued to begin with. By at least one metric, it’s worth over 65% more than its current price.

That’s confirmed by our Money Morning Stock VQScore™ system, which just gave this stock a top score.

And for now, you can get it for less than $35 a share…

This Small-Cap Stock’s Size Hasn’t Kept It from Developing a World-Class Reputation

ScanSource Inc. (NASDAQ: SCSC) was founded in 1992 in Greenville, S.C. Since then, it’s gone from six employees to more than 2,500 in 48 locations across North America, Latin America, and Europe.

The company serves as a one-stop wholesale shop for more than 38,000 resellers, providing training, support, and centralized logistics for its array of tech products. That frees up manufacturers to do what they do best: develop and build new products.

Those manufacturers include big-name tech and communications companies like Cisco Systems Inc. (NASDAQ: CSCO), Dell Technologies Inc. (NYSE: DELL), Honeywell International Inc. (NYSE: HON), and Verizon Communications Inc. (NYSE: VZ), along with about 500 more.

The company’s customers, which include value-added resellers and independent sales organizations, choose ScanSource both for convenience and to gain a competitive advantage.

Aiming for quality over quantity, ScanSource sells a relatively limited lineup of products. But within that line, sales reps can provide a solution for just about any challenge related to communications, point-of-sale, barcode, or physical security. And ScanSource’s sales and support reps provide the expertise to enable resellers to create and implement those solutions.

Another big advantage for resellers is that ScanSource provides centralized logistics. So they can order all the products they need from the same place and get them quickly. And since ScanSource has a 99.59% shipping accuracy rate, customers can be almost certain that their orders, no matter how large, will be right.

It’s not surprising, then, that ScanSource has developed an outstanding reputation over the last 27 years. It is currently listed as one of the World’s Most Admired Companies by FORTUNE magazine.

And just last month, five ScanSource employees were named to CRN’s exclusive Women of the Channel list, which includes women making outstanding contributions in IT distribution. One of those women, Ansley Hoke, was also named to CRN’s Power 100 list for her exceptional leadership as ScanSource’s Senior Vice President of Marketing in North America.

All this points to a stock that would be a great buy under any circumstances. But with the market currently overlooking its value, ScanSource is presenting an opportunity investors can’t afford to miss.

Now Is the Time to Buy SCSC

SCSC shares are already starting to bounce back, jumping from a low of about $29 at the end of May to about $31 now.

But the metrics suggest there’s a lot more room to grow.

ScanSource has boosted both sales and EPS every year since 2013. That’s projected to continue through 2021, according to FactSet.

And yet, the share price is down about 17% over the last five years, suggesting there’s plenty of pent-up growth ahead.

The company’s board appears to agree: It has committed $21 million to share repurchases in the last two years. That’s for a company with a market cap of only about $800 million.

ScanSource sales, by the way, are projected to hit $3.9 billion this fiscal year. That’s almost five times the stock’s market cap, another sign that this pick is undervalued.

Wall Street is waking up to ScanSource’s value too. Both analysts tracked by FactSet with coverage on the stock call it a “Buy” or “Overweight.” Their price targets range from 40% above its current price to 71%.

The higher end of that range is consistent with SCSC’s price-to-book ratio, which at 0.89 is just 60% of the industry average.

That would mean the stock would have to rise 66% just to reach its fair market value.

With all these indicators pointing in ScanSource’s favor, the market will surely take notice soon. So you don’t want to wait to pick up your shares.

— Stephen Mack

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Source: Money Morning