3SOF

Thanks for your help.  Here's some info from the investor conference.  I'm only gonna trade this stock, not hold for the long-term.  I believe it can reach its previous high of 18 since volume is at an all time high.  This stock has never had high volume before and last week volume was huge, surpasing all the other china stocks on fire.  Good Luck!

http://sec.gov/Archives/edgar/data/1321851/000115752307009251/a5495471ex99_2.htm

Quote from: terainvestment on September 17, 2007, 08:45:39 AM
Hi David,

thank you for your great analysis: can you check IOM if you have time?

Thanks,

A.

1. Profile

Iomega Corporation (IOM) and its subsidiaries engage in the design and marketing of various portable data storage products in the United States and internationally. Its products enable customers to store, protect, secure, capture, and share their digital content and data. The company offers various consumer products, such as Zip drives and disks, external hard disk drives, CD-RW drives, DVD rewritable drives, micro mini USB flash drives, and external floppy disk drives. It also provides various business products, such as REV drives, REV-based autoloaders, network attached storage servers, and network hard disk drives. In addition, the company offers various services, including managing firewalls, virtual private networks, and secure remote access for small businesses. Iomega's customers include retailers, direct marketing resellers, distributors, original equipment manufacturers, online vendors, value-added resellers, system integrators, and end users. It also sells its products and services through its Web site, www.iomega.com. The company was founded in 1980 and is headquartered in San Diego, California.

2. Stock Price History



This is curious, IOM had a bubble, but it wasn't in 2000, the stratospheric rise you see on the chart happened in 1996. Back then IOM earned $1.05 per share and in May 1996 it was trading at 130 times forward earnings. The inevitable decline followed, but interestingly, it wasn't due to dilution, but to shrinking sales over the long term. Look in the link how sales went down from $1.7 B in 1997 to $229 M in 2006.

IOM's business has been shrinking dramatically over the years. I'm not sure if this is because of falling demand in the data storage industry or due to competitive pressures, but I think it is because people don't need the company's products all that much anymore, because the computer disk's space increased a lot and people send big files over the internet, they don't move data by saving it to an external data storage device and then carry it to another computer, as they used to do.

Analysts are optimistic about the immediate future, though:



They expect a return to revenue growth and profitability. I wonder why the shift ... anyway, with the stock trading at $5.07, it is valued at 34 times 2006 earnings and 17.5 times 2008 expected EPS, which isn't cheap, especially for a company with declining revenue on an historical basis and what seems to be an obsolete product offering.

3. Short Term Chart



Over the short term things look better, with the stock up about 100% from the lows in about 12 months, as there's some revenue growth and profitability:

«"I am pleased with our financial and operational results for the second quarter which is historically our seasonally weakest quarter," said Jonathan Huberman, Chief Executive Officer. "We posted our fourth consecutive quarter of net income and third consecutive quarter of year-over-year revenue growth; and we continued to execute on our 2007 goals."»

So, IOM is a turnaround play. But the turnaround appears to be losing momentum, as analysts have been lowering estimates:



4. Conclusion

My take is IOM was able to have a "fundamental and technical rebound", but I'm not a believer in storing data in external devices to our computers. I believe we'll save everything in the hard disk and if we want to transport it, we'll just send it over the internet, using GlobalScape's products, for example.

GlobalScape is the future, Iomega is the past. Iomega's products will continue to be used, but not widely. The company needs to restructure its product offering to grow over the long term.

I can be wrong though, or not seeing the whole picture, good luck

David, could you please study CXPO?

I see a low share count stock, under decent accumulation, because of recent turn around in EPS because of a new gas well.

Quote from: ygtrdr on September 17, 2007, 09:39:21 AM
Morning David, or in your case, good afternoon!

FSTR please.

thanks.

1. Profile

L. B. Foster Company (FSTR) engages in the manufacture, fabrication, and distribution of products for the rail, construction, energy, and utility markets in the United States. It operates in three segments: Rail Products, Construction Products, and Tubular Products. The Rail Products segment provides heavy and light rail, relay rail, concrete ties, insulated rail joints, rail accessories, and transit products to industrial plants, contractors, railroads, mines, and mass transit systems. Rail accessories include trackwork, ties, track spikes, bolts, angle bars, and other products to install or maintain rail lines; and transit products consist of power rail, direct fixation fasteners, coverboards, and special accessories primarily for mass transit systems. The Construction Products segment offers sheet, pipe, and bearing piling products for public works and the private sector; fabricated highway products, such as fabricated structural steel, bridge decking, aluminum and steel bridge rail, and other bridge products to contractors for state, municipal, and other governmental projects; and precast concrete buildings to national and state parks. The Tubular Products segment provides fusion bond and other coatings for corrosion protection on oil, gas, and other pipelines; supplies special pipe products, such as water well casing, column pipe, couplings, and related products for agricultural, municipal, and industrial water wells; and sells micropiles for construction foundation repair and slope stabilization. The company was founded in 1902 and is headquartered in Pittsburgh, Pennsylvania.

2. Stock's History



It's amazing how this stock didn't participate in the 1982-2000 bull market, the biggest in the US history, and then made a 10 fold rise in the five years between 2002 and 2007.

The current market cap is still about $500 M, so still just a medium size company.

I see the fundamental improvement since 2002, with revenue rising from $257 M to $502 M expected for 2007. EPS rose from $0.35 in 2003 to $1.71 expected for 2007 and $2.18 for 2008.

The stock traded at about 10 times earnings for most of its past, and now it is trading at 27.6 times 2007 estimates. It's natural that after a 10 fold advance the stock isn't cheap anymore.

3. Short term chart



What a remarkable advance for FSTR, a basic materials company, and the US economy is weak, so they say. The 2nd quarter results were particularly strong:

• L.B. Foster Reports Record Second Quarter
PR Newswire (Thu, Jul 26)

Then there was this terrific news on September 5:

• Foster Announces Sale of DM&E Interest
PR Newswire (Wed, Sep 5)

FSTR was up 10.8% on this big news day and kept going higher since then. This transaction brings the following amount to FSTR:

«For Foster, the acquisition will result in a payment of approximately $151.5 million at closing ($14.24/share), approximately $41.6 million ($3.90/share) upon commencement of construction of the PRB, and up to $84.2 million ($7.90/share) upon achieving milestones related to PRB coal tonnage thresholds.»

Management intends to use the cash to:

"The proceeds generated from this transaction will be used to pay down certain debt and help fuel key long term strategic growth initiatives designed to bring continued profitability and maximize value to our shareholders", Mr. Hasselbusch concluded.

If we sum it all up, it gives FSTR $277 M in cash. I'll discount the $55 M in non-current debt and get $222 M in cash. This is $20.89 cash per share.

If we take out these $20.89 of cash of the current share price, we get $26.27. Divided by the $2.18 EPS expected for 2008 we get an earnings multiple of 12, which is attractive, for a company expected to grow earnings by 27.5% in 2008.

4. Conclusion

I don't get overly excited about buying a stock after rising 10 fold in just five years, but as Livermore says, no stock is too high to begin buying or too low to begin selling.

My overall opinion on FSTR is positive, good luck ygtrdr and BigSully1

David,
Could you pls take a look at HLIT?? looks very interesting..Im adding here under 12..

http://biz.yahoo.com/ibd/071012/tech01.html?.v=1

I'll spend some time on it tonight, and let u know more.
Thanks,
Nick

David,

ACH and YZC are doing very well, how long do you think this will last??
Pls take a look at them.

Nick'

I bought 2000 shares in August for 8.38.  This is one that David bought and sold in January, you will find it under closed trades.  I made a bunch of money on this company in 1999 and have been following it again since David gave his analysis in January and decided to buy it again as well as others during the August swoon.  David thanks for all your hard work.  I am still patiently waiting for your analysis on SIMG.

Poli

Quote from: Jim897 on September 20, 2007, 12:41:41 PM
David,

Please at least take a look at SIMC sometime soon.  It has been rising rapidly lately and will probably continue to do so for a while.  As I said earlier:

trading at a forward P/E of about 8 and a P/S of less than 0.5.

1. Profile

Simclar, Inc. (SIMC) operates as a contract manufacturer of electronic and electro-mechanical products primarily in the United States. It provides electronics manufacturing services to original equipment manufacturers in the data processing, telecommunications, instrumentation, and food preparation equipment industries. The company offers printed circuit boards (PCBs), finished products, subassemblies, molded and nonmolded cable assemblies, wire harnesses, injection molded, and electronic assembly products. Simclar provides a range of PCB products, such as pin-through-hole assemblies, and low and medium volume surface mount technology assemblies; and mixed technology PCBs, which include multilayer PCBs. It also offers cable and harness assemblies, such as multiconductor, ribbon, coaxial cable, and discrete wire harness assemblies. In addition, Simclar offers contract manufacturing, and systems assembly and integration services, as well as delivers test engineering and materials management services. Further, it provides reworking and refurbishing services, which comprise redesign, rework, refurbish, and repair of materials and subassemblies; backplane interconnect solutions to customers in the markets as such as network, wireline and wireless infrastructure, and defense and electronic data processing; and manufacturing services that includes computer integrated manufacturing and engineering services, quick-turnaround manufacturing and prototype development, materials procurement, inventory management, developing customer oriented manufacturing processes, and tooling and test sequences. The company was founded in 1976. It was formerly known as Techdyne, Inc. and changed its name to Simclar, Inc. in 2003. Simclar is based in Hialeah, Florida. Simclar, Inc. is a subsidiary of Simclar Group Limited.

2. Stock's History



It's curious to note that SIMC went down in the 1996-2000 period, while the general market was booming. I guess this happened because EPS went down from $0.27 in 1995 to ($0.43) in 2001.

Since 2001, even though not in a linear way, fundamentals improved substantially, with revenues rising from $36 M to about $136 M expected for 2007, and EPS rising to $0.44 in 2006 and about $0.62 expected for 2007 (this estimate was made just by doubling what the company achieved in the 1st half, there are no analysts covering the stock - later in the analysis I've changed this expectation).

The current market cap is $72 M.

3. Short Term Chart



We can see on this short term chart that the all time high around $13.85 has been a tough resistance. But let's study what happened in the pivotal points marked with numbers:

1) On May 15, 2006, SIMC rose 19.7% on volume above average of 439,300 shares. This happened because the company filed its 10-Q for the 1st quarter, showing revenue rising 78% from the year ago level and EPS rising to $0.11 from $0.05. With $0.11 in one quarter investors thought $0.44 for a full year (which later proved to be accurate), so the stock closed at $5.7/$0.44 = 13 times earnings on that day, which was attractive.

Eventually it went as high as $13.85, or 31.5 times earnings, which was somewhat expensive.

2) On August 15, 2006, the stock plunged 35% due to the following news:

«Simclar, Inc. is unable to file on a timely basis its Form 10-Q for the
quarter ended June 30, 2006 due to the discovery of accounting errors in its
Mexican operations during 2005 and the first quarter of 2006. The Company has
not yet been able to conclude whether these errors had a material effect on its
financial statements included in the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 2006 or its annual report on Form 10-K for 2005.
The Company's efforts to identify and correct those errors necessarily affect
its ability to prepare and file on a timely basis its quarterly report on Form
10-Q for the quarter ended June 30, 2006, both because of the diversion of the
time and effort of its accounting staff to the identification and correction of
the errors, and also because such corrections may affect the preparation of its
financial statements for the second quarter.»

The previous rise was put into question and the stock came off to the previous level.

3) Then, on October 12, 2006, SIMC rose 76% . The news was:

• SIMCLAR INC Files SEC form 8-K/A, Results of Operations and Financial Condition, Non-Reliance on Previous Financials,
EDGAR Online (Thu, Oct 12)

They made the following adjustments:



Because Q1 EPS was revised down from $0.11 to $0.08, expectations for the full year went down to $0.32, so at that day's close of $8.94, the stock was trading at 28 times earnings, which is expensive for a company making accounting errors and saying it has deficient internal controls. The stock came off to completely close the gap originated by the 76% one day rise.

4) On April 2, 2007, SIMC had another gap up, this one of smaller proportions, on the following news ... actually, there weren't any news on that day, at least not released by SIMC, perhaps it was some competitor's news or something. Anyway, in a few weeks time that gap was also closed.

5) The current advance phase, which took the stock from a low of $5.27 to a high of $14.14, had the following catalyst:

• Simclar, Inc. Announces Results for Second Quarter 2007
PrimeNewswire (Tue, Aug 14)

«Net income for the three months ended June 30, 2007 was $1,372,346 or $0.21 per share, compared to $709,033 or $0.12 per share in the same period in 2006.»

Naturally, with $0.21 EPS in one quarter investors immediately saw $0.84 for a full year, and with the stock trading at $6 when the news was out, inevitably it had to go higher, since the perceived earnings multiple was just 7. With the stock at $14 the multiple rose to 17, so that coupled with the $13.85 resistance level given by the previous all time high was enough to motivate bears to take the stock down to a low of $10.1 on Tuesday.

SIMC closed at $11.13 yesterday, so, with the current information of that one single quarter and extrapolating that for a full year, the current valuation is 13.25 times earnings, which is below the historical average. I guess investors, because they were bruised before, have attached a lower earnings multiple to Simclair, because of the fluctuations in revenue and earnings.

4. Conclusion

SIMC looks cheap at this point and if it can have a more stable fundamental improvement it will certainly rise. Investors have been positively and negatively surprised by this company a lot in the past, and that partially explains the low valuation of the company, despite its strong EPS growth.

Anyway, looking at SIMC's business, number of employees, revenue level and competitors I must say that it doesn't look like it's worth just $72 M. I say that with the current fundamental information the stock looks undervalued and it is bound to go higher.

Good luck if you own it Jim897

David, a while ago when you started the video portfolio, you said you planned to expand the main portfolio to 20 stocks in 2008, is that still the plan? I am considering to "fit" my portfolio to the main entirely now, or leaving some cash by the end of 2007 in anticipation for the other 5.

Thanks.

Quote from: realcoolhead on October 18, 2007, 08:41:13 AM
David, a while ago when you started the video portfolio, you said you planned to expand the main portfolio to 20 stocks in 2008, is that still the plan? I am considering to "fit" my portfolio to the main entirely now, or leaving some cash by the end of 2007 in anticipation for the other 5.

Thanks.

That's an excellent idea realcoolhead, thanks for reminding

I like it specially because I'm getting tired of writing 15 daily updates ... I like it a lot more to cover new stocks. I would start writing two new analysis per trading day, instead of one, as I look for new picks, and would only select 5 holdings to be updated, according to if there were meaningful price swings, relevant news out or a change in the trading plan.

But I don't think the reward/risk ratio changes much with 20 stocks instead of 15. I believe 15 holdings is diversified enough ... it is actually quite balanced in my view (I also read a study on the subject some years ago, which concluded that 15 different holdings was the ideal number for an individual investor portfolio). Anyway, 20 sounds fine too. 

Thanks for the suggestion, I'll probably follow it, I'll just have to talk to Ramsburg before any strategic changes. I'll let you know.

Quote from: poli on September 20, 2007, 04:30:33 PM
David: 

When you get a chance could you take a look at SIMG and see what you think?  I bought some in the mid 5's.

Thanks, Poli

1. Profile

Silicon Image, Inc. (SIMG) engages in the design, development, and implementation of semiconductors for the secure storage, distribution, and presentation of digital content. The company's solutions facilitate movement of digital content between and among digital devices across the consumer electronics, personal computers (PC), and storage markets. Its products are used in various devices, including digital television, digital versatile disc (DVD) players, high definition and Blu-ray DVD recorders, set-top boxes, audio/video receivers, game consoles, high definition camcorders, and digital still cameras. The company offers various consumer electronics products, including high-definition multimedia interface transmitters and receivers, as well as products that connect PCs to digital displays. It also offers storage controllers, bridges, and processors. The company markets its products to the consumer electronics, personal computer, display, and storage markets. It also provides semiconductor intellectual property solutions for digital multimedia and data storage applications. The company sells its products to distributors and original equipment manufactures worldwide directly through direct sales force; and indirectly through a network of distributors and manufacturer's representatives. Silicon Image has strategic relationships with Hollywood studios, such as Universal, Warner Brothers, Disney, and Fox; and consumer electronics companies, such as Sony, Hitachi, Toshiba, Matsushita, Phillips, and Thomson. The company was founded in 1995 and is headquartered in Sunnyvale, California.

2. SIMG's history



We can identify 4 phases in terms of stock price for SIMG:

Red - It was the technology bubble run, with SIMG rising from its debut price of $11.5, in October, 6, 1999, to a high of $66 in February 16, 2000, a 474% advance in five months.

Back in 1999 the company had $21 M in revenue and $7 M in losses. The share count was 51.5 million, so at its high the market cap was 51.5*$66 = $3.4 B, incredible.

Blue - The inevitable collapse came, and SIMG fell 98.4% to an all time low of $1.03, set in October 23, 2001. Fundamentally things got really bad, with 2001 revenue at $51 M and losses at $76 M. However, the bad fundamentals seemed priced in, as the market cap at the low point was 63.5*$1.03 = $65 M.

Green - Then a recovery phase, with SIMG rising almost 18 fold between late 2001 and late 2004. Revenue rose from $51 M to $173 M in 2004. There weren't any more losses, as the company posted break even results. The market cap at the 2004 high was 78.1*$18.37 = $1.4 B. The Price to Sales Ratio was quite high, at 8.1.

Yellow - Somewhat strangely, the stock started trending down again. I say that's strange because fundamentals kept improving. Probably it was just that the stock got too expensive and couldn't keep up with expectations.

In October 16, 2006, SIMG still closed at $14.52, so let's take a closer look at what happened since then.

3. SIMG's short term chart



I want to know what was the cause for the wild price swings and huge volume in points 1, 2 and 3:

1 - On October 27, 2006, SIMG fell 17%, with 6.5 million shares changing hands. The news out that day was:

• Silicon Image Warns
at TheStreet.com (Thu, Oct 26)

Because the company blamed seasonality for the revenue weakness, the stock came back up to close the gap over the next few weeks. However ...

2 - The actual results for the 4th quarter 2006 came in weaker than expected and 2007 guidance was cut. The stock dived 24% to $9.24.

3 - On August 3, 2007, SIMG fell 25.3% with 9.2 million shares volume, due to the following news release:

• Silicon Image Reports Second Quarter Results
PR Newswire (Thu, Aug 2)

Guidance was the main problem:



Anyway, with analysts expecting $311 M revenue in 2007 and $338 M in 2008:



... this gives me a Price to Sales Ratio of 1.7, which is well below the 8 the company achieved at its 2004 high, and much more closer to the sales multiple it had at its low point ($1.03 in late 2001, when the sales multiple was 1.27).

4. Valuation Model



According to my fundamental estimates, I would expect SIMG to recover back up to $11.34 in late 2010, rising 22% a year, on average. Given this, the optimal selling price today (the price where the expected return would fall below 16% a year), calculated by the model, is $7.25, that is, 16% above where it is now.

5. Conclusion

I believe SIMG is moderately attractive at this point, good luck poli

Quote from: Jim897 on September 21, 2007, 08:40:04 AM
David, here's another stock that I'd like you to analyze, UTVG.  It is a great growth story.  It is a leading air travel and air cargo transportation agency in Southern China.  The company (or analysts - I'm not sure which) is estimating .24 eps for 2007 and analysts are estimating .39 for 2008.  It currently trades at 3.45 and has been very bullish lately.

Yeah, I know that stock. I've covered it when it was trading at $0.9 and I was very positive on it, but failed to buy it (it was very thinly traded back then).

1. Profile

Universal Travel Group (UTVG.OB) provides domestic and international airline ticketing services and cargo transportation agency services primarily in the People's Republic of China. It also offers hotel reservations, packaged tours, and air delivering services. In addition, Universal Travel Group owns an aviation network, cnutg.com, which provides an air tickets sales network. The company is based in Los Angeles, California.

2. UTVG's stock market history



Man, UTVG.OB is up six fold since my initial analysis, what a miss

Let's see what we have now. The current market cap is 34,934,285*$5.54 = $193.5 M.

I see the company made several acquisitions recently:

• Universal Travel Group Announces Closing of the Acquisition of Xi'an Golden Net Travel Serve Service Co., Ltd.
PR Newswire (Mon, Aug 6)

«The price for the acquisition was $1,800,000, of which $1,542,000 was paid in cash. The remaining $258,000 was satisfied by the issuance of 151,765 shares of newly issued Universal Travel Common Stock.»

«The company had revenue of $5,500,000 and net income of $490,000 for 2006, and expects an 80% increase in revenue and net income for 2007.»

3.7 P/E ratio

• Universal Travel Group Announces Closing of the Acquisition of Shanghai Lanbao Travel Service Co., Ltd.
PR Newswire (Wed, Aug

«... announced today that it has completed the acquisition of Shanghai Lanbao Travel Service Co., Ltd. for US $3.920 million, of which $2.828 million was paid in cash and the remaining $1.092 million was satisfied by the issuance of 600,000 shares of newly issued Universal Travel Common Stock.»

«The company reported US $1.1 million in revenue and US $730,000 in net income for 2006.»

Net profit margin of 66% Earnings multiple paid was 5.4.

«"Due to the completion of these two acquisitions, we revised our previously announced guidance. We now expect to report 2007 revenue in the range of approximately $35 million to $36 million, up 250% to 260% from $10.01 million reported in fiscal year 2006. Net income for the 2007 fiscal year is expected to be in the range of $8.2 million to $8.5 million, or $0.23 to $0.24 earnings per share, an increase of 222% to 233% from $2.55 million reported in fiscal year 2006."»

WOW!

I'm dizzy, I really am, with this company's potential and my huge miss when it was trading at $0.9.

• Universal Travel Group Newly-acquired Subsidiary Xi'an Golden Net Reports $4.4M Revenue for the First Six Months of FY '07
PR Newswire (Tue, Sep 18)

• Universal Travel Signs Agreement to Acquire Foshan Overseas International Travel Service Co. Ltd.
PR Newswire (Fri, Sep 21)

«The price for the acquisition will be $6.5 million, of which $3.15 million will be paid in cash. The remaining $3,346,500 will be satisfied by the issuance of 1,122,986 shares of Universal Travel stock.»

«Foshan reported unaudited sales revenues of $11.9 million in FY 2006 with a net income of $930,000.»

So, the P/E of this acquisition was 7. Still cheap.

• Universal Travel Group Signs Agreement to Acquire 90% of Tianjin Golden Dragon International Travel Service Company
PR Newswire (Wed, Oct 17)

«The purchase price for this majority stake will be $7,889,000, of which $3,600,000 will be paid in cash and $4,289,000 will be satisfied by the issuance of 1,053,800 shares of Universal Travel stock.»

(the share part used to pay for the acquisitions is increasing).

«The company reported unaudited sales revenue of $16.17 million and net income of $1.13 million in FY'06.»

Again, P/E paid was 7.

«Jiang continued, "We estimate that the packaged tours segment will contribute about a substantial amount of Universal Travel Group's revenue. At present, China's tourism market demand is $150 billion, with a projected increase of 10% in the next five years. This represents broad development prospects for our company and a wonderful opportunity for further growth. In addition, we believe that the 2008 Beijing Olympics will further boost the overall business performance of UTVG."»

3. Valuation Model

I've derived some rough estimates, which are my best guess into this company's prospects:



According to my estimates, UTVG still looks extremely attractive, even after a 6 fold advance in less than a year.

4. Conclusion

I've never seen a company growing so rapidly, through organic growth and acquisitions, as UTVG. The way I see it, management has been buying fast growing and very profitable companies for as low as 7 times annual earnings or less. US stock market investors are willing to pay at least triple for the same companies.

It is somewhat annoying to buy a stock 500% plus higher than I could have bought in the beginning of the year, but given the fundamental information there's nothing else I can do but buy UTVG.OB as soon as possible.

Trading Plan:

Buy UTVG.OB, 6.66% of capital as usual.

David:  As a paying premium member, I would like to see more analyses on demand.  Maybe we could even go back to the one per day and the voting system.  I know it takes time to analyze these stocks, but 1 per day is feasible, right?

Quote from: realcoolhead on September 21, 2007, 11:37:16 PM
SIGM, this stock seems holding up very well during the latest pullback.

David, care to comment on this? I got SIGM from this guy, and his talking fits your thesis pretty well ...

http://www.changewave.com/freecontent/2007/09/freetobymain20070919.html

Yes, I fully agree with the macro views inside this article. And SIGM has been doing reasonably well

1. Profile

Sigma Designs, Inc. (SIGM) offers silicon-based digital media processors primarily for Internet protocol (IP) video technology, connected media players, high-definition televisions, and personal computers add-in and other markets. Its REALmagic video streaming technology is used in various consumer applications providing integrated solutions for decoding of H.264, MPEG-4, MPEG-2, MPEG-1, and Windows Media Video 9. The company offers silicon-based media processors for Internet protocol television set-top boxes, digital media receivers, high definition DVD players, high definition television, and portable media players. It also provides video and audio decoding chips under the names of EM8400 series, EM8500 series, EM8610 series, EM8620L series, and SMP8630 series for the IP video technology market and connected media player market, as well as the PC add-in market. In addition, the company offers development kits, engineering support services, and chipset customization engineering development. Sigma Designs sells its products to consumer equipment manufacturers, distributors, value-added resellers, and corporate customers through direct sales force and distributors. The company was founded in 1982 and is headquartered in Milpitas, California.

2. SIGM's History



SIGM traded within a range for twenty years, between roughly $5 and $20. It broke out of this 20 year old range in late 2006, and more upside followed.

I notice that the share count doubled between 1998 and 2007 and the current market cap is 24,398,318*$58.59 = $1.43 B.

I think the crucial question in SIGM's historical analysis is: "What was the catalyst for the late 2006 breakout?"

As usual, the answer is given by a change in the fundamentals. Revenues were more or less flat for 10 years, but in 2006 quarterly revenues and profits began to improve dramatically:



3. Recent Developments



I've selected points 1 and 2 to get a feel of which are the news driving the stock higher:

1 - In August 30, 2006, SIGM rose 17% to $13.73, on volume of 4.3 million shares. The news out that day was:

SIGMA DESIGNS, INC. REPORTS SECOND QUARTER RESULTS

«Net revenues for the second quarter were $20.1 million, up 36% from $14.8 million for the previous quarter and up 153% from $8.0 million reported for the same period last year. The increase in revenue and selected financial results was primarily attributable to increased chipset sales to manufacturers of IPTV set-top boxes.»

«"We are pleased to report another 36% sequential increase in revenue resulting in a year-over-year revenue growth of 153%. This further demonstrates the inflection point in demand for IPTV based deployments at a widening set of telco carriers as well as Sigma's dominance in this market. We are now shipping media processor chips for volume consumption in every major region of the world and believe that our SMP8634 chipset is becoming a defacto standard for IPTV set-top boxes.»

2 - Exactly one year later, in August 30, 2007, SIGM rose 10.5% on 10.5 million shares changing hands, due to the following news:

• Sigma Designs, Inc. Reports Second Quarter Results
Business Wire (Wed, Aug 29)

«The increase in net revenues was primarily attributable to increased SoC sales to manufacturers of IPTV set-top boxes, Blu-ray Players, and HDTVs. Net revenues for the first two quarters of fiscal year 2008 were $78.6 million, up 125% from $34.9 million for the same period in the prior fiscal year.»

So, after 20 years asleep, SIGM landed a very fast growing market, chips for IPTV set top boxes. It appears telcos want to replace cable companies in our homes, through IPTV. I saw some commercials here in Portugal, with Sonaecom (a mobile phone operator), offering TV in a similar way cable does, and thought it was strange, but now I see it had to do with IPTV already being in the marketplace.

4. Valuation

There's no doubt SIGM is in a very hot sector and it has been growing revenues and profits in a spectacular way. The stock reflected this growth by rising 500% over the last 12 months. The question now is: "Is there more to come or SIGM is fully valued now?"

To try answering this question first let me consider analysts estimates:



They're expecting $1.94 EPS in the fiscal year ending in January 31st, 2008. So the Price/Earnings Ratio is 30. I think the fiscal 2009 estimates are way too conservative, since they're expecting just 7.7% growth, which is ridiculous in my opinion. I think this sort of thing happens because analysts are fast in upgrading the current year estimates (due to positive earnings surprises), but they "forget" to raise next year's estimates as quickly:



As usual I'm going to use my valuation model and my best guesses to determine if SIGM is attractive and if so, by how much:



Considering 5% share count CAGR, 50% revenue CAGR, 25% net profit margin and 25 times earnings multiple, SIGM's shares will rise roughly 33% a year, to $137.65 three years from now.

And I'm being fairly aggressive in my estimates, because, let's see, I have 5% dilution factor, while the historical share count growth rate is 8.2%. I have 50% revenue CAGR, but analysts are expecting just 34% growth in fiscal 2009. I estimate net profit margin will remain at 25%, but in the latest earnings release management said the following:

«The Company expects a continued increase in demand for its products with over 20% growth in net revenues for the third quarter. The Company's gross margin target remains within 200 basis points of 50% with some variance expected due to the timing of its cost reduction efforts and pressure from its customers to lower its selling prices as their order levels grow.»

And an earnings multiple of 25 is above the general market average which is about 15.

5. Conclusion

33% a year is attractive, but considering my goals for the Main Portfolio, which are "at least 30% average annual growth", it just barely beats the objective. I need to own stocks which I expect to rise a lot more than 30% a year to compensate for the ones that will rise less, or not even rise at all.

The ideal time to buy SIGM was in August 2006 when the stock jumped above $13 on better than expected earnings, since back then it was already clear that was due to an emerging trend, IP TV.

Now, even though the stock is still quite attractive, it seems a bit late for my goals. I don't think making chips for IP TV set top boxes can ever be a $5 B business, $2 B - $3 B is the top in my opinion. And of course, there are risks (there are always risks), IP TV can be a flop, with not a lot of market acceptance, or there can be competition for SIGM's chips. Moreover, what happens after every potential consumer already has an IP TV set top box? While telcos providing the IP TV service have recurring revenues (monthly subscriptions), the set top box is sold only once every 5 years or more. This can put pressure in the earnings multiple in the future.

Balancing the potential and the risks I wont invest in SIGM's shares at this point, but good luck if you own it

Hi David,
I see, you know how to do research for compony
in tech sector.
Maybe not the SIGM but company from "internet TV" sectom
is very good.
In USA for TV cable is $50-150 a month,
for internet TV is $1.99-30 a month.
All computers manufacturs are sell computers with HDTV boards and wide
LCD monitors for HDTV
Thanks
Gogo