In the Small Cap Arena, Cash Is King
|Written by GSCR Staff|
|Wednesday, 21 January 2015 06:56|
In yesterday’s Goldman Guide we highlighted some macroeconomic trends and market reactions in what has been a rough January so far.
We believe small cap companies with relatively large amounts of cash on hand will begin share buyback programs this year. There are several candidates we examined but one stood out from the pack.
Back in January 2013 we featured Photronics, Inc. (NASDAQ – PLAB - $8.24) in the Market Monitor at $6.06. Last February we thought it was time to get out at $8.18 with a 35% gain in stock price. We were half right and half wrong on this call as the stock has oscillated around $8.50 plus/ minus $0.75. Now maybe the time to hold on or even add here based on themacro premise mentioned above along with a few other key factors.
For a refresher, Photronics together with its subsidiaries, manufactures and sells photomasks in the United States. Photomasks are high precision photographic quartz plates containing microscopic images of electronic circuits. The Company offers photomasks for the use in the manufacture of semiconductors and flat panel displays (FPDs), as well as for use as masters to transfer circuit patterns onto semiconductor wafers and flat panel substrates during the fabrication of integrated circuits, FPDs, and other types of electrical and optical components. The Company sells and markets its products to semiconductor designers, manufacturers, and foundries, as well as to other high performance electronics manufacturers.
Photronics has over $192 million in cash on hand as of the end of its 2014 FY on November 1, 2014, which translates to nearly $3 per share cash on hand. An operating margin of 7% versus the industry average of 6% also indicates the Company is keeping operating costs under control. Additionally, the Company has total debt of just $142 million and a book value per share of $9.53 which are positive indicators of optimal capital structure.
A forward P/E of 13 versus a trailing P/E of 20 on analysts’ estimates of nearly 14% revenue growth to $529 million for FY2015 is a great value sign. A low 5-year PEG ratio of 2 also indicates some longer term growth potential.
The tech and semiconductor industry should remain strong in 2015. This event coupled with strong valuation metrics and plenty of cash on hand make PLAB a nice add to your small cap portfolio. The stock could climb to $11 this year once it breaks through the $9.40 resistance level.
Have a great day!
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
This Market Monitor blog was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces research via two formats: Goldman Select Research, which typically highlights small cap companies, and Goldman Opportunity Research, which features micro cap companies in a sponsored research format. Thus, the Select product reflects the Firm’s internally generated stock ideas while the Opportunity product reflects sponsored research reports.
Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co.
It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in each company-specific report. All information contained in this blog, newsletter and in our reports were provided by the Companies or generated from our own due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations.
The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small CapResearch blog, report, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed.
This blog does not take into account the investment objectives, financial situation, or particular needs of any particular person. This blog does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with FINRA or with any state securities regulatory authority.
ALL INFORMATION IN THIS BLOG, REPORT OR NEWSLETTER IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLECONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLECONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.
For more information, visit our Disclaimer: www.goldmanresearch.com
Leave your comments