HAUP

[David Randolph]

1. Introduction

I've seen HAUP's thread on the Stock Picking board being kind of active, but never really had the time or interest to take a look at it. But today the stock has come up on my technical filter with a strong bullish technical signal.

So I can't close my eyes to it anymore, let's make a full coverage on HAUP.

2. Profile

Hauppauge Digital, Inc. (HAUP) engages in the engineering, development, manufacture, and marketing of products for the personal computer and home entertainment markets. (complete profile here)

3. Technical Analysis
3.1. All History Chart



You know that I'm starting to love these technology stocks that survived the tech bubble collapse?

3.2. Medium Term Chart



The medium term chart shows HAUP is now fighting with a resistance level. The sustainability of the current rise makes me believe it will indeed breakout above  $7.20 on close.

3.3. Short Term Chart



HAUP closed a bit above the short term resistance of $6.95 with volume much higher than average. It looks like a technical buy signal was just given. Let's also make some fundamental tests.

4. Fundamental Analysis
4.1. Number of Shares Outstanding



I'm almost perplexed to see there wasn't any dilution at all since 1997. This means this small technology company not only survived, it did so without any help from investors.

The current market cap is $67.46 M.

4.2. Liquidity



HAUP's balance sheet is clean, no long term debt.

4.3. Revenues



Look at the astounding revenue growth since 2002. And I believe, given the company's business model, the best is yet to come without a doubt.

What seems incredible is that this hot technology company is trading at $67.46 M/$97.7 M = 0.69 times trailing revenues

The Computer Peripherals industry average Price to Sales Ratio is 2.4.

4.4. Profits



Profitable for the last three years. The trailing earnings multiple is $6.99/$0.24 = 29. That's about the industry average (but HAUP is much better than average. It is in a sweet spot of a global trend, as we'll see).

5. General Overview

Both technical analysis and fundamental analysis say HAUP is a very attractive stock to buy.

Now check their website and tell me if a company that is selling these products worldwide can be valued at just $67 M:

http://www.hauppauge.com/

The current trend to video on the internet, PC's and mobile devices won't stop soon. It is the hottest industry out there at this moment. And here lies HAUP, trading below revenues and profitable, enjoying the exponential growth of the online video mania.

There's no doubt in my mind that HAUP will go higher, much higher than current levels.

6. Trading Plan

The plan is to buy HAUP between $6.95 and $7.30, today, 6.66% of capital as usual.

[anvilring]

Heres a link to the companys website...

http://www.hauppauge.com/
         

[tokyopua]

In here at 7.00, a little worried about a gap fill, but I bought a little less than I normally would so that I can add to my position in that event.

[basonista]

Nice pick, David!

It may hurt me short term but I'm going to try to get in a little lower.  The markets have been weak all week and today should continue that run lower.  Especially if the open is any indication. 

[basonista]

OK, I'm in at 6.90.  Good luck to us all!

[David Randolph]

In here at 7.00, a little worried about a gap fill, but I bought a little less than I normally would so that I can add to my position in that event.

Nice catch tokyopua, much better than my entry price at $7.17. I wouldn't worry too much about the short term, or that gap below.

Nice pick, David!

It may hurt me short term but I'm going to try to get in a little lower.  The markets have been weak all week and today should continue that run lower.  Especially if the open is any indication. 

I wouldn't think too much about the short term, I'd ratter focus on the fundamentals of the company.

I've been reading the entire 10-Q to see if there's anything under the carpet, but no, can't find anything that justifies the current  undervaluation, perhaps just the low average liquidity of the stock (which is increasing now).

The company's Q1 (that is, the October - December quarter) is always the strongest, and with the online video mania picking up steam, I see the current quarter being a blowout quarter, breaking all previous quarters numbers. You see, the company was already growing nicely, but nothing like what I'm expecting going forward.

This can also be seen in the company's geographical sales, with the US growing from 36% two years ago to 51% this latest quarter. Why? You guys are ahead on online video content than us in Europe. I believe that's the reason.

The company has its products for sale in major retailers:

Where to buy

I guess the intraday weakness can be explained by the $7.17 short term resistance level (it was the high on December 2005), but I'm pretty positive fundamentals will make the stock break $7.17 shortly.

Good luck

[shaker340]

Ok, let's give it a try.  I'm in @ $6.9778 to be precise

[rayongthai]

Excellent DD David. Thank you.

I am thinking that the big buyers are waiting for the stock-flippers to go away so that they can start investing heavily like they did at the start of 2004. I believe HAUP will trend upwards with few spikes up and down. I also believe that we will ses $10 - $14 within the next 3 months.

I suspect that there are a few suicidal shorts trying to short the stock. The more the merrier as far as I am concerned. They obviously have not researched this stock as much as you have.

In my opinion HAUP is at a point where it is starting to really gain some momentum in revenues and net income. My estimate for 2007 is $110M in revenues and 50c/share net income. The nice thing about HAUP is that it keeps increasing its cash position every quarter while maintaining ZERO long term debt. HAUP now has almost $1/share cash.

[David Randolph]

Hi rayongthai, congrats on picking HAUP

Revenues were $42 M in 2002, $50 M in 2003, $65 M in 2004, $78 M in 2005 and $97.7 M in 2006, as you can see on the graph below:



This means the average annual revenue growth rate for these five years was:

42*(X^5) = 97.7 <=> X^5 = 2.3262 <=> X = (2.3262)^(1/5) 
<=>X = 18.39%

So, if the growth rate stays the same, revenues for fiscal 2007 will be $97.7 M*1.1839 = $115.67 M, so I think you're being conservative on your $110 M revenue estimate.

But I think the growth rate will accelerate, and by leaps and bounds, here's why:

Until now people didn't have much necessity to watch TV on their PC's or mobile devices. Sure, there was some need, but there are TV's everywhere and image quality is superior. But with this video sharing and video content mania on the internet, there will be much more need for the peripherals the company sells.

For example, I may hear something on CNBC, for example, Cramer bashing DIVX lol and I want to show that to you. If I had this peripheral, I could be recording CNBC and then slice the part that I want and upload it on youtube.com or Google Video and put it here on this message board.

Now imagine people all over the world sending pieces of TV to their friends. For example "watch this news on CNN", or "watch this joke from Jay Lenno". I think that as time goes by, video is replacing text on the internet. We won't be sending links with big texts to each other, we'll be sending video-clips, many of them captured from TV's. Another example that I can think of is my nephew recording skate maneuvers from radical TV channels and sending out to his friends.

Anyway, the message is, the landscape for HAUP's products is changing. Demand can be unprecedented from past levels.

We sure hope so

[rayongthai]

Bravo!!!

I agree 100% on your visionary comments.


Why would a multibillion $$ conglomerate like D&M Holdings would dedicate a page of its company update to investors last month to the HAUP/Replay TV offering???....and call it "Growth Opportunity??."

D&M owns industry flagships such as Denon, Marantz, McIntosh, Boston Acoustics, Snell Acoustics, Escient, and Replay TV...........some think that HAUP could be next.  D&M has aquired the majority of the companies it owns this decade.

[rayongthai]

Looks like HAUP is ready to breakout. The $7 resistance has been removed. Many people will become aware of HAUP over the weekend. We could see a powerful breakout next week.

[David Randolph]

I agree. The only real competition to HAUP is ATI. Being that I was in IT for a while...i tested both products and HAUP is much faster, cleaner/clearer and has very few problems. We use HAUP over ATI here at work. Over the past years, I watched HAUP gain more market share over ATI in the TV/video capture products. Very similar to how Dell surpassed Gateway or Wal-mart over K-Mart back in the days. ATI is the leader in the graphic card technology, but HAUP is winning the market in the video capture world. That's my two cents. Good Luck guys!

Great info kpunarc Can you tell me a bit more about ATI, I'm sure it isn't a stock symbol, is it the full name of a company? Is it publicly traded? Thanks !

Looks like HAUP is ready to breakout. The $7 resistance has been removed. Many people will become aware of HAUP over the weekend. We could see a powerful breakout next week.

Yes, but easy rayongthai, this way it looks like you're trying to pump the stock and you lose all your credibility. Watch how you've been talking about HAUP on the Stock Picking Board and nobody paid attention, do you know why? Because you write like a pumper.

We're all intelligent people here, I know you are too and you seem to have market knowledge, so please stop with the pumping attitude.

Thank you, watch how your rating is going up

(oops, there was some mistake on this post, instead of writing a new one I was modifying kpunarc's post, fortunately I made a complete quote of what he wrote, because it is valuable information - sorry for this)

[freimuch]

David ATI Technologies is a company that makes chips for the video technology area. It was a hot stock last year. They are a competitor of NVDA but they were bought out by AMD a couple months back Their symbol used to be ATYT.

Overview
ATI Technologies' technologies let computer screens radiate reality. ATI vies with NVIDIA and Intel as the world's top supplier of computer graphics chips and boards. Its popular RADEON graphics chips incorporate 3-D and 2-D graphic and video acceleration for enhancing visuals on PC and Macintosh platforms, and its ALL-IN-WONDER products integrate graphics, video, and TV tuner features on a single add-in card. ATI's customers include IBM and Nintendo; it also markets its PC upgrade cards to consumers through retail outlets. AMD has acquired ATI for about $5.4 billion in cash and stock.

[Michael]

Hi David and Rayong,

I am just back from a Christmas dinner. Not quite sober but when I was sober (before the market opened) I had a small talk with David about HAUP.

Yes, but easy rayongthai, this way it looks like you're trying to pump the stock and you lose all your credibility. Watch how you've been talking about HAUP on the Stock Picking Board and nobody paid attention, do you know why? Because you write like a pumper.

We're all intelligent people here, I know you are too and you seem to have market knowledge, so please stop with the pumping attitude.

Thank you, watch how your rating is going up

I know exactly how David is feeling. I also thought that this was a pump and dump business before I had a closer look. As I said on 3SOF free:

Hmmmm... Much to my surprise I actually like this stock. Kind of reminds me about DivX.

The financials looks interesting and the chart as well.

This might be a pump and dump in which case I am the garbage can because I have just put a very generous offer in the market.

One of the lessons I have learned on 3SOF is that your credibility is of paramount importance. On most boards you can just post bullish messages every 2 minutes under different alias. That doesn't work here. We all know each other (this might sound a bit stupid as we now have more than 8000 members but stay around and you will know what I mean)!

That is why I honestly was surprised when I saw the real value in HAUP. As some of you know I were 95% in cash up to this point. Not anymore! I see the same potential in Hauppauge that I saw in XING, GIGM and KOMG. A company with a very healthy balance sheet, strong growth, increasing earnings and close to ridiculous valuation.  But these companies have one more thing in common. They are all benefiting from the new trend of sharing experiences online.

Whereas the last couple of years have been about sharing experiences via text messaging and voice the coming years will be devoted to pictures and Video. As David said:

The current trend to video on the internet, PC's and mobile devices won't stop soon. It is the hottest industry out there at this moment. And here lies HAUP, trading below revenues and profitable, enjoying the exponential growth of the online video mania.

HAUP seems ideally positioned to take advantage of the trend. They are a clear leader in the TV to PC business and their  revenue and earnings growth shows that this is the right place place to be! Both Microsoft and Apple have launched Video "IPOD's" (using STX and KOMG technologies!) and if you want to watch TV on your IPOD ......   Hmmmmm.... You need WinTV, which happens to be supplied by..... HAUP.

The market value of HAUP is 68 million USD. Is that fair value? I don't think so....

It is Christmas and unfortunately 3SOF can't send Christmas gifts to all the members but I think that HAUP could be the Christmas gifts that we have all been waiting for.

Merry Christmas!

[HANDBALLJIM]

I got in yesterday...I guess I was a step ahead of the pick   

Besides HAUP...I went a little crazy buying yesterday...BFLY, NIHK, ONT, SKNN, and ITUI. 

I also own F, ARTG, SIM, SAI and VKSY (not sure if I should have listened to the little birdy that told me to buy this one).

Interesting note: SKNN - I showed my wife who is Japanese the Skins website
http://www.skinsfootwear.com/ and she really thought it was a great concept and long term investment.

She seems to know style trends well, and she is also big on Coach, Burberry, PacSun, and American Eagle Outfitters.  So we will see if SKNN has some potential. To bad I can't dress...all I need is shorts to play Handball. LOL

If I can get out of SIM, SAI, and VKSY without losing money.....I will buy more of HAUP, ONT, and SKNN. I would love to get some FRPT on some profit taking also.