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Alpha and Omega Semiconductor - Value

By: Zacks.com
Posted: 9/27/2012 1:00:00 AM
Referenced Stocks: AOSL

Alpha and Omega Semiconductor Ltd. ( AOSL ) has posted an average earnings surprise of 82% over the past four quarters, most recently delivering a 73.3% beat in the fourth quarter of 2012. This manufacturer of power semiconductor products moved to a Zacks #1 Rank (Strong Buy) status on September 24.

However, the stock remains significantly undervalued, with a forward price-to-earnings (P/E) multiple of just 8.59 and a low price-to-book (P/B) multiple of 0.79.

Earnings Surge in Q4

Alpha and Omega Semiconductor reported strong fourth quarter 2012 results on August 14 with earnings at 26 cents per share. The better-than-expected earnings were primarily driven by strong revenue growth and margin expansion.

Revenue jumped 12.4% from last year to $94.3 million. Gross margin expanded 350 basis points, driven by productivity improvements. Although operating expenses soared 11.2%, operating profit surged 106.3% based on a higher revenue base.

The strong fourth quarter encouraged Alpha and Omega Semiconductor to provide a positive guidance for the first quarter of 2013. The company forecasts revenue between $92 million and $96 million, while non-GAAP net income is expected to be 8% - 9% of revenue for the upcoming quarter.

Earnings Momentum on the Rise

Over the last 60 days, the Zacks Consensus Estimate for AOSL's fiscal 2013 has risen 3% to $1.03. This reflects 102% earnings growth from 51 cents in the year-ago period.

Valuation Continues to Impress

In addition to low P/E and P/B multiples, the stock looks attractive given a price-to-sales (P/S) multiple of just 0.65. A P/E below 15.0, a P/S ratio less than 1.0 and a P/B ratio under 3.0 generally suggest a value stock. Moreover, Alpha and Omega's PEG ratio of just 0.43 indicates that the stock is reasonably valued given the expected growth of 20%.

Historically, declining earnings have significantly impacted prices. The uptrend in 2013 and 2014 earnings estimates should encourage investors as the stock is likely to follow the trend.

Sunnyvale, California-based Alpha and Omega Semiconductor manufactures power semiconductor products that transfer, manage and switch electricity to deliver the appropriate amount of voltage to a broad range of electronic systems (TVs, computers, smartphones) and also protect electronic systems from damage resulting from excessive or inadvertent electrical charges.

Alpha and Omega Semiconductor is a leading provider of more than 1000 power semiconductor products. The company introduced more than 240 new products in fiscal 2012. AOSL has a strong client base that includes Dell Inc. ( DELL ), Hewlett-Packard Company ( HPQ ), LG Electronics, Inc. and Samsung Group.


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