This past weekend, Neil Martin of Barron's
one company that appears to be rebounding from a rough patch.
Investors may get a chance to benefit from an ensuing rise in the
company's cash flows, and thus its stock price.
That company is semi-conducter assembler and tester ChipMOS
This stock could be one of few cheap alternatives to play the
proliferation of smartphones and tablets. Shares of ChipMOS are
trading around 13% higher today. However, they are still trading
at a forward P/E ratio around 4, while Apple (NASDAQ:
) has a forward P/E ratio more than double that, close to 10.5,
and Google (NASDAQ:
) has a forward P/E ratio of around 12.
Why does this stock appear to be so cheap? It has been through
the ringer over the past few years. Declining demand and lost
customers hit the company hard during and after the financial
crisis, with the firm experiencing a net loss of nearly $140
million throughout fiscal 2009.
Benzinga spoke to Analyst Richard Shannon of Craig-Hallum
Capital Group to gather his take on ChipMOS. Shannon gives the
company a Buy rating.
In ChipMOS Technology's May 18th earnings release, Shannon
believes many investors will be paying attention to revenue
guidance for the second quarter and seeking reaffirmation of the
company's 10% yearly growth estimate.
Shannon also states, however, that he does not believe these
metrics are the most relevant data points. "The company's 2Q12
and 2012 sales guidance are not as important as the understanding
that [its] cash flow is so much higher than reported net income,"
voices Shannon, "and that there is such a margin of error built
in that it doesn't matter what the sales guidance is."
"There is a good amount of growth available in the LCD market
for them," says Shannon. He says he thinks the company will
benefit from a product mix shift towards LCD semi-conducters.
This, along with fading depreciation from capital expenditures
that occurred 4-5 years ago, should contribute to earnings growth
to compliment the company's encouraging cash flows.
Moreover, Shannon says the proper choice of multiple to
evaluate ChipMOS is Price-to-Free-Cash-Flow. ChipMOS currently
has a P/FCF ratio around 3.5. Shannon remarks that, by applying a
reasonable P/FCF multiple to ChipMOS, he has valuated the company
at a price in excess of $20, compared to its current price near
$14. He adds, "I wouldn't be surprised if they were an
acquisition target, given how cheap they are."
ChipMOS is set to report first quarter earnings on May 18th
before market open.
Disclosure: At the time of this writing, I did not own
shares of any companies mentioned in this post.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.