SILC

[David Randolph]

Hi David,

  Love your analysis. One quick question: could you explain the calculation in deriving the $95.50 optimal selling price? Thanks!

Dory99

Thanks Dory99, it's simple. As you know I'm looking for at least 16% share price CAGR to consider the stock attractive. As it is now, given my estimates, SILC has a 91.4% share price CAGR, because the estimates tell me SILC will be a $148.96 stock by the end of 2009.

To get the optimal selling price, I manipulate the initial share price up (I change the figure by hand), until the share price CAGR goes down to only 16%. For SILC that price is $95.5.

It means that if I were to buy/hold SILC at $95.5 or above, the return on investment I would get (or share price CAGR), would be 16% or less, so the investment would not be attractive anymore, and the stock should be replaced by another more promising investment. That's why $95.5, given my current long term estimates, is the optimal selling price.

But of course, estimates need to be adjusted as we get more information, and if actual results start coming in better than my estimates, that optimal selling price would rise.

I hope I was able to explain this well, anyway, hopefully you'll get a better explanation and the excel model on Monday or so when I deliver that 10 page document. 

Thanks David.  I am kicking myself for not buying in yesterday at $19 when I asked you that question.   Sad It is now $21.  I may just buy a small position on Monday, hoping to add to it if it corrects... if it doesn't, at least I won't be totally out and enjoy the ride up with some position).

Keep up the good work!!!  I looked at IPII today and that stock looks attractive.  I can't wait to watch your analysis on that.

Hi dragonamg, according to my valuation model, SILC is still extremely attractive at current levels, with an expected share price compound annual growth rate of 91.4% as you can see below. Yes, I'll cover IPII on Monday, but I saw there's no growth, and I believe that will be a problem, because without growth, there's no fundamental reason for the stock price to go up, even if it is trading at a discount.

Again, let me put SILC's valuation model here:



I'll keep holding SILC.

[Dory99]

Thanks again, David.

After I posed the question last night, I attempted to replicate your logic ( and system ) with an Excel spreadsheet. For optimal selling price, I took final estimated share price and divided it by 1.16 over three years. So, for SILC, for example:

$148.96/1.16 = $128.41/1.16 = $110.70/1.16 = $95.43

.... pretty close...

Again, thanks for all your great work. It's really paying off!!!

[dnickers]

Hi Dory99 -

You can use the formula:

(Final Price) / ((X+1)^n) = Optimal selling price

Final price = expected valuation at the end of our term.
X = share price CA(annual/yearly term)GR percentage that we will no longer be satisfied with...0.16 here.
n = term, in years (annual), that was used to determine the final price.

So,

$148.96 / ((0.16 +1)^3) = X
$148.96 / (1.16^3) = X
$148.96 /  1.56 = X

X = $95.43

This can be put into Excel in a way that makes all the variables easy to manipulate, and saves one from having to do this calculation by hand. 

Looking forward to the document David!  Keep up the great work .

.derek

[Terliso]

SILC is almost there at the resistance

[David Randolph]

Thanks for your comments and help Dory99, dnickers and Terliso

Thanks to dnickers formula I was able to automatize the "optimal selling price" and it gave me the same $95.43 value as it did to you. Given my current estimates, and despite the fact that I'm winning 76% on this investment, SILC is still the one of the most attractive stocks in the Main Portfolio, so I can't let go of it, can I?

The chart says probably a short term top was made today, but who cares about short term developments? I don't, because if I did, I had a 100% probability of missing the big ride. Money is made on the big swing, not by betting on short term fluctuations.

The model says SILC should only be sold at $95.43, given current estimates:



Even though I feel a pullback coming, my trusting of the fundamentals and of long term trading as the best strategy makes me keep on holding SILC.

[eggman11]

Thanks for your comments and help Dory99, dnickers and Terliso

Thanks to dnickers formula I was able to automatize the "optimal selling price" and it gave me the same $95.43 value as it did to you. Given my current estimates, and despite the fact that I'm winning 76% on this investment, SILC is still the one of the most attractive stocks in the Main Portfolio, so I can't let go of it, can I?

David,

You mention that SILC is still one of the most attractive stocks in the portfolio. Would it be in the top 3 most attractive stocks? Is the 3 stocks on fire, still your top 3 currently. I think the stocks on fire would greatly benefit from a weekly update confirming your 3 favorite picks and any current stocks within the portfolio with potential for the 3 stocks portfolio.

Thanks

[David Randolph]

David,

You mention that SILC is still one of the most attractive stocks in the portfolio. Would it be in the top 3 most attractive stocks? Is the 3 stocks on fire, still your top 3 currently. I think the stocks on fire would greatly benefit from a weekly update confirming your 3 favorite picks and any current stocks within the portfolio with potential for the 3 stocks portfolio.

Thanks

I replied this issue on the "About the 3 Stocks on Fire Portfolio" thread.

As for SILC, fundamentally nothing changed. Technically it appears the stock came down to close a gap that was left open. The trend is still bullish.

I'll continue holding SILC.

[David Randolph]

We're getting closer to the first quarter earnings release, so I believe it is important to remind what would confirm my long term estimates on SILC.

1) The share count on a fully diluted basis in Q4 2006 was 5.38 million. It should increase by no more than 0.5%, to 5.41 million, to confirm the 1.02 dilution factor;
2) Revenues in Q1 2006 were $3.287 M. They should be $6.574 in Q1 2007 to confirm the estimated revenue CAGR of 2;
3) I estimate full year net profit margin, for 2007, of 25%. It is enough if it comes at about 22% in Q1 2007;
4) As for the EPS multiple I estimate 25, and SILC's industry average is 28. Currently, if we consider the 2006 EPS of $0.49, SILC is trading at 43 times its trailing earnings, so I don't think there will be a problem for it to achieve a long term EPS multiple of 25.

I'll keep on holding SILC.

[David Randolph]

With the growth in revenues and profitability SILC is experiencing I thought that I shouldn't keep considering 25 as the 4th working variable of the model, the EPS multiple estimate. As I've been doing with other holdings, I'm using the respective industry average for this estimate, and SILC's industry, which is the Networking & Communication Devices industry, trades at 28.79 times trailing earnings.

Here are the current results of the valuation model for SILC:



Today's optimal selling price is just $103.64 and the estimated share price CAGR is 92.4%, so, despite SILC currently being the biggest gainer of the Main Portfolio, with an 80% profit, it is still the most attractive stock in the portfolio.

No doubts I'll keep holding SILC, and I should also buy it for the 3 Stocks on Fire Portfolio, I was just expecting more details about NVTL, which is also an awesome pick, but I still cannot determine by how much.

[David Randolph]

SILC was just 10 cents shy of touching its all time high set in February 3, 2000, at $23.69:



Current and expected fundamental trends say SILC will surpass this level to a new all time high, even though it can have some sort of short term pullback:



The expected share price CAGR is 91.8% and the optimal selling price today is $103.64.

This is based on the following 4 estimates:

1) Dilution factor is 1.02

I don't expect more than this, since the balance sheet is healthy and the company is quite profitable now.

2) Revenue CAGR of 2

This is where I'm just a bit afraid of being too optimistic, not for 2007 or 2008, but maybe for  2009 ... I don't know if the WAN optimization market will keep on growing for several years or will have a big boost now and then slowdown. Anyway, growth can be stronger in 07 and 08 and weaker in 2009, and yet revenues grow from the 2006 level of $16.1 M to $128.8 M in 2009 (this is what a revenue CAGR of 2 for the next 3 years means, that annual revenue will rise 8 fold).

3) Net Profit Margin of 25%

Net profit margin in Q4 2006 was already 21.25%, so I don't think there will be a problem in achieving 25%. I believe this is where we can have a positive surprise.

4) EPS multiple of 28.79

Well, now I see the Networking & Communication Devices industry average earnings multiple rose from 28.79 to 32.1. I'll adjust SILC's model for this multiple expansion, and the estimated share price CAGR and optimal selling price will rise because of this change.

SILC is very attractive by all means, I'll continue holding it.

[David Randolph]

SILC touched its all time high today, at $23.69, and closed just shy of it, at $23.49. Fundamentally nothing changed (except the industry average earnings multiple expansion):



SILC shows an extremely high expected share price CAGR of 98.1% and the optimal selling price is now $116.96, so no doubts I'll keep on holding the stock.

[David Randolph]

SILC is another one that put foot in new all time high territory, but closed just a touch below. Anyway, given my fundamental estimates, SILC will be a $186.1 stock in three years time, so the price at which I would start getting less than 16% annual return (the optimal selling price) is $119.23, so SILC remains an extremely attractive stock in my view:



The optimal selling price rose a bit since yesterday because the Networking & Communication Devices industry average earnings multiple expanded from 32.49 to 33.12.

I'll keep holding SILC.

[Se7en]

Silicom's First Quarter 2007 Results Release Scheduled for April 25
Wednesday April 18, 7:57 am ET 
- Conference Call Scheduled for April 25th, 2007 at 9:00am EDT -


KFAR SAVA, Israel--(BUSINESS WIRE)--Silicom Ltd. (NASDAQ: SILC, TASE: SILC), an industry-leading provider of high-performance server/appliances networking solutions, announced today that it will be releasing its first quarter 2007 results on Wednesday, April 25th, 2007, before the US market opens.
The Company will also be hosting a conference call that same day, at 9:00am EDT. On the call, management will review and discuss the results, and will also be available to answer questions by investors.

To participate, please call one of the following teleconferencing numbers. Please begin placing your calls at least 10 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, try the international dial-in number.

                        US: 1 888 281 1167

                        UK: 0 800 917 9141

                       ISRAEL: 03 918 0609

                 INTERNATIONAL:  +972 3 918 0609

  At: 9:00am Eastern Time, 6:00am Pacific Time, 4:00pm Israel Time

For those unable to listen to the live call, a replay of the call will be available for three months from the day after the call under the investor relations section of Silicom's website, at: www.silicom.co.il


http://biz.yahoo.com/bw/070418/20070418005593.html?.v=1

[wxmang]

I couldn't resist GUYS!
Just bought some more SILC on the 3% dip.
I finally have my 6.6% invested in SILC.
I am excited about the upcoming earnings date
Hopefully we will see upward earnings revisions as well.

Wxmang

[David Randolph]

SILC will release earnings on April 25, before the opening bell, that is, next Wednesday:

• Silicom's First Quarter 2007 Results Release Scheduled for April 25
Business Wire (Wed 7:57am)

On a previous update I've written what I needed from this quarter to confirm my expectations:

We're getting closer to the first quarter earnings release, so I believe it is important to remind what would confirm my long term estimates on SILC.

1) The share count on a fully diluted basis in Q4 2006 was 5.38 million. It should increase by no more than 0.5%, to 5.41 million, to confirm the 1.02 dilution factor;
2) Revenues in Q1 2006 were $3.287 M. They should be $6.574 in Q1 2007 to confirm the estimated revenue CAGR of 2;
3) I estimate full year net profit margin, for 2007, of 25%. It is enough if it comes at about 22% in Q1 2007;
4) As for the EPS multiple I estimate 25, and SILC's industry average is 28. Currently, if we consider the 2006 EPS of $0.49, SILC is trading at 43 times its trailing earnings, so I don't think there will be a problem for it to achieve a long term EPS multiple of 25.

I'll keep on holding SILC.

As for the valuation model, you know you now have it always updated on the Main Portfolio page:



The optimal selling price is rising because the Networking & Communication Devices industry average earnings multiple has been expanding.

SILC has the highest score in terms of "% to exit" in the Main Portfolio, so I'll buy it today for the 3 Stocks on Fire Portfolio. SILC will be replacing NVTL.

I'll keep holding SILC.