The demand for digital multimedia products is growing, as consumers become increasingly fond of complex communications, entertainment and business devices. There is a firm in Taiwan with a solid reputation for the development of semiconductors that serve this market.
Silicon Motion Technology (NASDAQ: SIMO) designs, develops and markets semiconductors for the multimedia consumer electronics market. It offers mobile storage products, used in flash memory cards and USB flash drives. It also provides the multimedia system-on-chip devices used in MP3 players, personal computer cameras, personal computer notebooks and broadband multimedia phones. Mobile storage products account for about 85% of sales.
The firm surprised investors last week, when it reported Q3 EPS of 30 cents and revenues of $45.8 million. Analysts had been expecting 29 cents and $44.3 million. Management also guided FY07 EPS to $1.20-$1.30, versus consensus of $1.18. Deutsche Securities subsequently reiterated its "buy" rating on the issue and boosted its price target to $31. The share price popped on the news and then moved into a bullish "pennant" consolidation pattern. Stocks frequently exit pennants moving in the same direction they were traveling on entry. In this case, that would be to the upside.
Altogether, brokers recommend the shares with one "strong buy," nine "buys" and one "hold." Analysts see a 32% growth rate, through the next year. The SIMO P/E ratio (20.54), PEG ratio (0.68), Price to Book ratio (3.66), Sales Growth rate (44.94%), Operating Margin (23.40%), Net Profit Margin (23.85%), Return on Assets (19.11%), Return on Investment (22.12%) and Return on Equity (22.23%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 59% of the outstanding shares. Over the past 52 weeks, the stock has traded between $14.73 and $29.00. A stop-loss of $21.35 looks good here.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.
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