Connection (CNXN): Buy, Sell, or Hold Post Q4 Earnings?

March 17, 2025 at 05:10 AM EDT

CNXN Cover Image

Over the last six months, Connection’s shares have sunk to $60.87, producing a disappointing 18.3% loss while the S&P 500 was flat. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is there a buying opportunity in Connection, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Even though the stock has become cheaper, we're swiping left on Connection for now. Here are three reasons why we avoid CNXN and a stock we'd rather own.

Why Do We Think Connection Will Underperform?

Starting as a small computer products seller in 1982 and evolving into a Fortune 1000 company, Connection (NASDAQ: CNXN) is a technology solutions provider that helps businesses and government agencies design, purchase, implement, and manage their IT infrastructure and systems.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last four years, Connection grew its sales at a sluggish 2% compounded annual growth rate. This was below our standards. Connection Quarterly Revenue

2. EPS Growth Has Stalled

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Connection’s full-year EPS was flat over the last five years, worse than the broader business services sector.

Connection Trailing 12-Month EPS (Non-GAAP)

3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Connection has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.2%, subpar for a business services business.

Connection Trailing 12-Month Free Cash Flow Margin

Final Judgment

We see the value of companies helping consumers, but in the case of Connection, we’re out. Following the recent decline, the stock trades at 16.9× forward price-to-earnings (or $60.87 per share). This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere. We’d recommend looking at the most dominant software business in the world.

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