Silicon Motion Technology Corp. (ADR) (SIMO)

Just cruising the posts and selecting some lottery picks. I cannot say anything more or better than what has already been written about this stock.

Balance sheet for the last quarter shows total debts of 28.2 mil and assets of 211.8 mil.
Their current assets (101.8mil)(Cash and short term assets) are just over the price of the company at the moment(101.1mil).

Current ratio is at 4, graham suggest at least 1.5.
They definitively will survive this downturn.

The price to book ratio is at 0.55, graham suggest under 1.2.

They have shown profit in the last 8 years except for last year, they are showing profit this year which is a sign of recovery.

They have products that will sell for at least the next 20 years and will probably have time to develop something new in that period of time.

To me this seems like a Screaming buy, the only reason I can see they have been overlooked is the small Market cap at which they are trading which scares institutional investors, which is good for us individual investors with less then say 200000$ to invest in the company.

Silicon Motion Technology Corporation (SIMO) is a semiconductor company that designs, develops and markets, high-performance, low-power semiconductor solutions for the multimedia consumer electronics market. It has three product lines: mobile storage business, multimedia systems-on-a-chip (SoC) business, and mobile communications business. The company went public in 2005 and is headquartered in Taiwan; it trades as an ADR in the US.

The mobile storage business is composed of microcontrollers used in not and electronic logic gate (NAND) flash memory storage products, such as flash memory cards, universal serial bus (USB) flash drives and embedded flash. The multimedia SoC business is composed of products that support portable multimedia players, global positioning system (GPS) devices, digital audio broadcasting (DAB) systems, personal computer (PC) cameras and embedded graphics applications. And the mobile communications business is composed of mobile television (TV) integrated circuit (IC) solutions, code division multiple access (CDMA) radio frequency (RF) ICs.

I came across SIMO while looking for some inexpensive stocks for swing trades. When I plugged it into my spreadsheet, the data looked very good for a long-term value play, however, my program pulls from the Morningstar website and it only had data through 2007. The analysis presented is based on a price of $3.40 and the Morningstar data has been supplemented with information from the 2008 annual report. This is a stock that is flying under the radar; Seeking Alpha only has three articles in 2008 and three in 2007, and except for press release information, none of these articles focus on SIMO as a potential investment.

The most concerning aspect of this stock is that the EPS is that it dropped precipitously last year (from $1.20 to $0.29). Until then, the compounded annual growth (CAGR) has been 57%. Nonetheless, the free cash flow has continued to be positive as well as increase. Until 2008, return on equity (ROE) has consistently exceeded 15% (exceeding 20% in 2006). In addition, SIMO’s cash position makes up about 64% of the price of the stock and the company has no debt.

Before I look at the valuations, I look at three indicators of financial safety. For this stock, all three are quite good. The Altman Z is 4.4; below 1.8 is risky, above 3 is the safe range. The Piotroski F is 7; 2 or below indicates caution, while 8 or 9 indicates that the stock is expected to rise within the next year. The Sloan accrual is -8.23; 5 or higher is high risk, while -5 or lower is excellent.

I use more than one valuation method to gauge intrinsic value; the first three all provide a good margin of safety (MOS). The first three are standards in the valuation literature. The estimate based on Graham’s formula was $21 (84% MOS). The Earnings Power Value (value of the firm) was estimated, on a per share bases, to be $8 (57% MOS). The Discounted Cash Flow estimate valued the stock at $30 (89% MOS).

The last two were based on a spreadsheet found on the AAII website; these are designed to mimic Buffett’s valuation methodology. One is based on projecting EPS growth 10 years into the future based on past EPS growth; I discount the resulting valuation to reflect the price at which the stock will realize a compounded earnings (including dividends when applicable) return of 15%. Based on this method the target purchase needs to be below $3.62, and at the current price there is a 6% MOS.

The second is based on estimating EPS growth through the sustainable growth rate. The per-share projected book value is estimated by taking the previous year’s book value, adding EPS and subtracting dividends (when applicable). The projected EPS is estimated by multiplying the projected book value by the average Return on Equity, and the projected dividend is estimated by multiplying the projected EPS by the average payout ratio. I then discount the resulting valuation to reflect the price at which the stock will realize a compounded earnings return of 15%. Based on this method the target purchase needs to be below $7, and at the current price there is a 52% MOS.

To ascertain that the price is attractive to me, I take one more thing into consideration. At the current price, would I expect an immediate 15% return on my investment (ROI) based on earnings and dividends? In this, the EPS represents about 8.5% of the share price by itself (there is no dividend yield to add in). However, at a price of $3.40, for the stock to achieve 15% would only require an EPS of $0.51; a mark that SIMO has exceeded in every year the company has been publicly traded.

Based on value and safety, I think SIMO has excellent investment potential. The only flaw that emerged from my analysis is the immediate return on investment, and I think that is more a hurdle stemming from recent circumstance rather than a barrier that must be overcome before choosing to invest.

Looks like good value to me. No Debt, still generating cash, inventory is going down as well.
5 CAPS stars mid-July 09

I think this might go down some but will eventually double to $6-7 by end of 2010 (if the economy is good by then)

Considering Book value, earnings, and market cap...this should beat the market in 5 years.

Nice balance sheet in an expanding industry. Should have room to grow.

Caps screener: Shot up 20% yesterday so I am a little reluctant to pull the trigger today but it is still beeaten down. Has pleanty of room to run.

I'm predicting a short squeeze in the near future. Stock is undervalued by fundamentals and has not kept up with S&P growth. Product demand will strengthen in world markets.

mobile TV

Semiconductor companies are climbing and this one has little long term debt

Even though the assets took a hit, they kept their liabilities down and have no debt. Cash looks good too. They can weather the storm.

This is an up and coming stock, the chip makers have been hit hard by the economy, but this is one sector we have all seen rise from it's ashes before. I followed another All-Star to this stock pick. He picked it up for 2.11 the smart guy. IMHO The fact that their tech is designed to be multi-platform compatible & low-power means big growth!

Companies without debt don't go bankrupt.

No debt, load of cash. By Jan 2010 things should be comming out of the recession and these guys should be positioned well.

undervalued semi with good numbers in a challenging and competitive sector but has great longterm outlook with no debt and the ability to gain market shares.

Tech stock that is unfairly oppressed by the market. Will bounce and once the dust settles from the election, tech stocks will be in high demand again.

budandmolly

Revenue Growth/Loss (Last 3 Years) ? 25.00%
Profit Margin ? 10.00%
Price to Earnings Growth <1
Debt to Capital (MRQ) ? 30.00%
P/E Ratio (TTM) ? 12
Price to Book (MRQ) <1
4-5 Stars on 11/2/08

SSD Drives are the next big thing.