Is Rambus a Re-hash?

Written by GSCR Staff   
Thursday, 03 December 2015 07:27

We gave you our three winning sectors in Monday’s Guide, which included technology. We decided to take a look at one of our previous picks and stock we have followed over the last few years. This was an attempt by our part to look at one of our big winners from the past, just as some of the Hollywood studios are doing this Holiday season as we also mentioned in the Guide.

In March 2013 we first featured Rambus, Inc. (NASDAQ – RMBS - $11.77) at a price level of $5.39. We wrote about the stock a few more times with the last update coming in April of 2014. The chart below illustrates the performance of RMBS over the last two years. The stock is up a fantastic 118%

RMBS 2-Year Chart

(Source: www.otcmarkets.com)

MM.12.02.15.RMBS-2yr

Rambus’ technology solutions include memory, chip interfaces and architectures, end-to-end security, and advanced LED lighting. The Company focuses on designing, developing, and licensing technology that is related to memory and interfaces; and providing various services, including know-how and technology transfer, product design and development, system integration, and other services. The Company also focuses on the design, development, and licensing of technologies for chip and system security, and anti-counterfeiting, as well as offering semiconductor cores under the CryptoFirewall brand.

The question is what to do from here? The ‘Oracle of Omaha’ would tell us not to get greedy.

First, we will look at the bad. The forward P/E is 20 and the trailing is 7 with consensus estimates for top line revenue to decrease a percentage or two over the next two years from the 2014 level of $297 million. On the technical side, a short float of 16% is also relatively high.

What do we like about RMBS? The deal flow in a rapidly expanding industry continues to remain solid. Earlier this week LG Electronics (LGE), a global technology leader in consumer electronics, home appliances and mobile communications, announced it has licensed the CryptoManager™ security platform from Rambus for its next-gen mobile devices. Another huge winning area for Rambus is margins. The Company has an operating margin of 10x the industry average with 21%. The gross margin of 85% is nearly 2.5x the industry average of 32%. Finally, cash on hand versus debt as of September 30th was $363 million versus $158 million respectively. This is crucial in demonstrating optimal cash management and capital utilization to keep product development churning at high volume.

In any event it may be time to at least take some profit or lock in some gains with your favorite option strategy. We think RMBS has more room into 2016 and approaches $13 in early 2016.

Have a great day!

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