NVEC

[David Randolph]

June 4, 2007:

Initial video analysis for NVEC:

[David Randolph]

NVEC had a 35% jump on Thursday:



Due to the following news release:

• NVE Corporation Reports Third Quarter Results
PrimeNewswire (Wed, Jan 23)

EPS grew 63.6% from the year ago levels and the share count on a fully diluted basis was reduced a bit:



Revenue growth over the past three quarters averaged 25% and net profit margin in this latest quarter was 40%. This is considerably better than the estimates I had in my valuation model:



I've estimated 17% revenue CAGR and net profit margin of 30%.

Using these new numbers the valuation model looks like this:



This way the stock looks attractive and it is still about 17% below my initial analysis.

Checking the profile:

«NVE Corporation engages in the development and sale of devices using spintronics, a nanotechnology, which utilizes electron spin rather than electron charge to acquire, store, and transmit information. The company provides standard sensors that detect the presence of a magnet or metal to determine position or speed; custom sensors primarily for medical devices; and couplers that use semiconductor input stages, primarily for factory and industrial networks. NVE Corporation also licenses the spintronic magnetoresistive random access memory technology, commonly known as MRAM. It sells its products through distributors primarily in the United States, Europe, and Asia. The company was founded in 1982 and is headquartered in Eden Prairie, Minnesota.»

... and the company's website: http://www.nve.com/index.php

I need to study some more about "spintronics", but so far I liked what I saw.

[David Randolph]

As it happens with most stocks, there are several analysts covering NVEC company, providing more or less in depth fundamental analysis (well, much more in depth than the ones I do, as they have more time and are fully dedicated to just a few companies).

So I'll just copy/paste the latest analysis on NVEC, published in February 29, 2008:

NVEC: Improving visibility with new distributors; pullback creates opportunity to accumulate shares

Investment Highlights:

Our channel checks suggest that new distributors (Braemac CA LLC, and SFO Takumi Inc.), which were added last quarter, have started stocking NVE's products. We believe that customers from the new distributors are already evaluating NVE products. Generally, it takes 6-18 months for engineers to evaluate and design the product in their applications. We also anticipate that the company will be adding more online distributors.

The company has filed a patent application on "Enclosure tamper detection and protection." In August 2007, the NSF (National Science Foundation) through SBIR released some details on the investigation grant. The technology is used to protect encryption keys from prying, and can potentially self destruct if tampering occurs. Temper detecting enclosures uses magnetoresistive sensing memory cells and a magnet at a known distance to provide a magnetic field. Opening of enclosures will change the magnetic field and thus the memory cell value. We believe this patent can be used to develop intrusion detection devices for computer enclosures.

We also note that MRAM developed at Freescale is also getting good reviews. Recently, Angstrom Aerospace announced that it is using Freescale's 4Mb MRAM for its satellite subsystem. Because MRAM is non-volatile, reliable, and fast, it is ideal for environmentally harsh applications, such as industrial automation, military, and aerospace. It is replacing battery-backed SRAM. NVE has many patents related to MRAM technology. NVE, we believe, continues to quietly pursue licensing opportunities with Freescale.

Meanwhile, the company has the opportunity to continue its momentum in the industrial and medical industry, and potentially build business in the consumer and automotive space. The company is also working on biosensors for military purposes (detection of Anthrax and other harmful agents). While we are in an extremely difficult tape, we believe that this stock can sustain a multiple of 22x our fiscal 2008 EPS estimate of $1.41 (they are on a March fiscal year-end); and 18x our EPS estimate of $1.66 for fiscal 2009. Thus, our price target is $30. We find the recent pullback in the share price to be an excellent buying opportunity.

Now me:

The analyst's price target is $30, supported by a valuation of 18X his EPS estimate of $1.66 for fiscal 2009, which isn't cheap these days.

NVEC is just 8% shy of $30. I guess the stock is more or less fully valued at current levels. With the current fundamental information there isn't significant upside (also not a lot of downside potential).