I am at a complete loss to explain the markets reaction to Nu Horizons’s (NUHC) most recent quarterly results. People appear content to follow the herd for now, but the problem with being surrounded by warm bodies is it makes a quick escape impossible.
Nine months ago the company all but guaranteed 4% operating margins by the quarter ending February ’07, which they reported yesterday. Operating margins were at 3.3% last fall when they made this statement. They have declined steadily since then and currently are at 1.2%.
Everything was awful about their quarter.
Distributor equities such as Avnet (AVT) and Arrow (ARW) have done exceptionally well in the past six months. I believe Nu Horizons is being lifted by misplaced positive sentiment associated with these companies.
I fail to understand the long term attraction of these businesses in a global environment that is universally eliminating all high cost middlemen. Why should components, the ultimate commodity, be any different? This should be especially true in the technology industry, the sector catalyzing these global changes in the first place.
Author holds and controls short Nu Horizons and long Vitesse positions.