Price to sales ratio of 0.20? SMTX

SMTC Corporation (SMTX). The Group's principal activities are to provide advanced electronic manufacturing services to the electronic industry and original equipment manufacturers worldwide. The Group's services include product designing, procurement, prototyping, assembly, test, comprehensive supply chain management, packaging, global distribution and after-sale support. These services are provided through eight manufacturing and technology centers located in the United States, Canada, Europe and Mexico. The Group has relationships with over 50 Original equipment manufacturers. The customers include IBM and Alcatel.

Of course, what attracted me in the first place to SMTX wasn't the financials, but the chart, take a look at this advance phase:



Did it rose 200% in a few days? Great, investors are perceiving a big difference between the market value of the stock and its fundamental value.

Even if I had a lot of time I wouldn't go very deep into the company's financials. I like to see value at first glance, if I had to dig a lot to see the value, others will have to do that too to buy the stock, and that way it would be harder to gather bullish steam.

At first glance, what do I see?

I see sales for the second quarter of about $57M, extrapolating that for a full year I get about $228M in sales and a market cap, at current prices, of 14.6 million shares*$3.17 = $46.28M, so the price to sales ratio is about 0.2.

Maybe something's wrong with this math, but considering the chart, maybe not ... earnings have also rebounded, from a big loss in the first quarter to a small profit in the second quarter.

Looking at the long term chart, I know where this advance phase will probably stop and where I'll be looking to sell my position:



About $6 looks fine. I'm buying SMTX at today's open for the 3 Stocks on Fire Portfolio.

(This recommendation was made by David Randolph from 3 Stocks on Fire, and he will update this analysis everyday after the close until he sells the stock. 3 Stocks on Fire is a Community of stock traders and investors. Our 3067 members exchange trading ideas and strategies on our message boards everyday. We welcome you as a new member of the 3 Stocks on Fire Community, please take 10 seconds to register and receive our free newsletter)

David Randolph
www.3stocksonfire.org


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