Sigma Designs (SIGM) shares consolidate recent gain in bullish 'pennant'

Posted Dec 4th 2007 3:36PM by Larry Schutts
Filed under: Earnings Reports, Analyst Upgrades and Downgrades, Microsoft (MSFT), Cisco Systems (CSCO), Alcatel-LucentADS (ALU), Technical Analysis, Stocks to Buy, Technology

Sigma Designs (NASDAQ: SIGM) develops and markets high-performance system-on-a-chip semiconductors for Internet Protocol set-top boxes, DVD players/recorders, high definition TVs, digital media adapters, portable media players and ultra-wideband connectivity products. The company also offers engineering support services and customized chipset development. It has alliances with a variety of well-known tech names, including Cisco Systems (NASDAQ: CSCO), Microsoft (NASDAQ: MSFT) and Alcatel-Lucent (NYSE: ALU).

Sigma Designs surprised the Street last week, when it reported Q3 EPS of 79 cents and revenues of $66.2 million. Analysts had been expecting 55 cents and $51.8 million. Management also guided Q4 revenues to about $72.8-$76.1 million ($54.76M consensus). RBC Capital Markets upgraded the shares to "outperform". Six other brokerages reiterated recommendations of "buy" to "strong buy". All seven firms boosted their price targets to points in the $75-100 range.

SIGM shares popped on the news and then moved into a bullish "pennant" consolidation pattern. Prices 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 stock with five "strong buys", seven "buys" and four "holds". Analysts see a 29% average annual growth rate, through the next five years. The SIGM Sales Growth rate (163.75%), EPS Growth rate (574.68%), Operating Margin (23.33%), Net Profit Margin (22.47%), Return on Assets (20.01%), Return on Investment (22.54%), Return on Equity (22.68%), Revenue per Employee ($977.98k) and Net Income per Employee ($219.72k) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 85% of the outstanding shares. Over the past 52 weeks, the stock has traded between $19.77 and $69.50. A stop-loss of $58.90 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.

Tags: fundamental analysis, FundamentalAnalysis, momentum, pennant, SIGM, Sigma Designs, SigmaDesigns, technical analysis, TechnicalAnalysis