Last update on 2024-06-07

ScanSource (SCSC) - Piotroski F-Score Analysis for Year 2023 (Final Score: 3/9)

Learn about ScanSource's (SCSC) Piotroski F-Score Analysis for 2023. Understand the financial strengths and weaknesses with a comprehensive evaluation.

Short Analysis - Piotroski Score: 3

We're running ScanSource (SCSC) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

ScanSource (SCSC) scored a 3 out of 9 on the Piotroski F-Score scale. The company's net income is positive, indicating profitability; also, it has improved its current ratio and shares outstanding have decreased, signaling good liquidity and shareholder value. However, several red flags were found: the company has a negative cash flow from operations, declining ROA, increased leverage, decreasing gross margin, and declining asset turnover. Historically, the company has shown resiliency but also significant fluctuations in financial metrics, raising concerns about its consistency and operational efficiency.

Insights for Value Investors Seeking Stable Income

Based on the given analysis, ScanSource (SCSC) shows a mixed financial picture. The positives include strong net income, improved liquidity, and reduced share dilution. However, the negatives such as negative operating cash flow, declining return on assets, increasing leverage, and decreasing asset turnover suggest caution. It may not be the best candidate for risk-averse investors seeking stable growth. For investors willing to dive deeper and possibly tolerate some risk, more detailed examination and possibly historical performance context are recommended before making an investment decision.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of ScanSource (SCSC)

Company has a positive net income?

Net income is the total earnings of a company, calculated as revenue minus expenses, taxes, and costs. A positive net income is essential as it indicates profitability.

In 2023, ScanSource reported a net income of $89,809,000, which is positive. This adds 1 point to the Piotroski score. Comparing this with historical data, the 2023 net income is one of the highest in the last 20 years, surpassed only by years like 2012 and 2014. Notably, 2020’s negative net income of -$192,654,000 stands out as a significant downturn, likely due to the pandemic. The steady recovery in subsequent years highlights the company’s resilience and operational efficiency. Overall, the positive trend in net income over the last three years signals a robust financial health, lending a favorable view to investors.

Company has a positive cash flow?

Cash Flow from Operations indicates the cash a company generates from its regular business operations. Positive CFO suggests the company's core business is generating sufficient cash.

In 2023, ScanSource (SCSC) reported a negative Cash Flow from Operations (CFO) of -$35,769,000. This negative value indicates that the company's core operations are not currently generating positive cash flow, a trend that can be concerning. Comparing it to previous years, this is not a first for ScanSource; they had negative cash flow in various years, such as 2009, 2011, and notably -$124,354,000 in 2022. Historically, however, they've bounced back to positive CFO in subsequent years, suggesting cyclical cash flow patterns. Nevertheless, for the Piotroski Analysis, this results in a score of 0 points for the CFO criterion.

Return on Assets (ROA) are growing?

Return on Assets (ROA) is a crucial indicator of a company's profitability relative to its total assets. It reveals how efficiently a company's management is utilizing its assets to generate earnings. An increase in ROA signifies better financial performance and is viewed positively.

The ROA for ScanSource (SCSC) in 2023 is 0.0448, which has decreased from the ROA of 0.0492 in 2022. This decline means that the company has become less efficient in generating earnings from its assets over the previous year, which is unfavorable for investors. In addition, considering the last 20 years, ScanSource's ROA has witnessed considerable fluctuations, reflecting variable operational performance. Compared to the industry median ROA, which has generally been above 0.10, ScanSource’s figures reveal that its performance typically lags behind its peers. Overall, this declining trend in ROA from 2022 to 2023 results in a score of 0 for this criterion, signaling a negative insight.

Operating Cashflow are higher than Netincome?

Operating Cash Flow being higher than Net Income indicates that a company is generating more cash from its operations compared to its accounting earnings, hinting at strong cash-generating ability and high earnings quality.

Despite 2023's solid Net Income of $89.81 million, ScanSource's Operating Cash Flow is -$35.77 million. This discrepancy is concerning as it implies that the company's actual cash generation from core operations is negative, overshadowing the positive net income. The negative operating cash flow relative to net income typically indicates problems with earnings quality and cash flow efficiency—vital aspects for a healthy financial position. Historically, while ScanSource has experienced variability in Operating Cash Flow, the negative figure for 2023 amid positive Net Income ends in a score of 0 for this criteria. This historical trend signifies periods of inconsistency, raising red flags for potential investors.

Liquidity of ScanSource (SCSC)

Leverage is declining?

The Piotroski F-score evaluates a company's financial strength, including Change in Leverage, which indicates short-term debt shifts. A reduction signals improved financial stability.

Leverage for ScanSource increased from 0.1407 in 2022 to 0.1607 in 2023, suggesting higher financial risk. Historical data reveals fluctuations, from 0.0741 in 2003 to a low of 0.004 in 2015, then rising to 0.1607 in 2023. The leverage increase from 2022 to 2023 earns a score of 0, indicating potential financial weakness. This uptick could imply greater debt reliance, affecting long-term viability. Analysts often view rising leverage skeptically as it may spark future liquidity issues.

Current Ratio is growing?

Change in Current Ratio indicates the company's ability to cover its short-term obligations with its short-term assets and is a measure of liquidity.

In 2023, ScanSource's Current Ratio stood at 2.1061, an improvement from the 1.8714 recorded in 2022. This uptick in the ratio indicates that the company has enhanced its liquidity position, implying that it is better equipped to meet its short-term liabilities with its current assets. Over the last 20 years, ScanSource's Current Ratio has experienced fluctuations, peaking at 2.5216 in 2009 and reaching a low at 1.664 in 2021. Interestingly, the company's 2023 Current Ratio not only improved year over year but also trended slightly above the broader industry's median ratio of 2.2534 for the same year, indicating competitive positioning in liquidity management. This positive change warrants a point under the Piotroski Analysis for improved liquidity, reinforcing investor confidence in the company's short-term financial health.

Number of shares not diluted?

Change in shares outstanding indicates whether a company is diluting shareholder value. Decreased shares outstanding could imply better returns for the current shareholders.

ScanSource (SCSC) had 25,504,000 outstanding shares in 2022, which decreased to 25,142,000 in 2023. This decrease of 362,000 shares is generally good as it could mean less dilution and increasing returns per share. Historically, over the last 20 years, ScanSource has managed its share count effectively, indicating a positive trend. Adding 1 point for this criterion.

Operating of ScanSource (SCSC)

Cross Margin is growing?

Change in Gross Margin is a crucial metric as it depicts a company's core profitability performance. Enhanced gross margins often signal improved pricing power or cost efficiencies.

The Gross Margin for ScanSource has decreased from 0.1208 in 2022 to 0.1186 in 2023. Thus, under the Piotroski analysis, this criterion does not receive a point, garnering a score of 0 here. Over the last 20 years, ScanSource's gross margin peaked in 2021 at 0.1209, but has generally trended below the industry median. This recent slip could indicate rising costs or pricing pressures, warranting further scrutiny into operational efficiencies and cost management.

Asset Turnover Ratio is growing?

The Asset Turnover ratio measures a company's ability to generate sales from its assets. It's important to assess the efficiency of asset utilization.

The Asset Turnover for ScanSource (SCSC) has decreased from 1.9561 in 2022 to 1.8912 in 2023. This trend is not positive as it indicates that the company is generating less revenue per unit of asset compared to the previous year. Over a span of 20 years, SCSC's asset turnover has seen a general decline from 2.8184 in 2003 to the current 1.8912. The comparison with historical data further reinforces the concerning trend of declining efficiency in asset utilization.