|Written by GSCR Staff|
|Wednesday, 17 February 2016 06:54|
In Monday’s Goldman Guide we discussed our winning formula for small cap picks in this market. One of our key metrics is EPS growth and undervalued stocks from a P/E perspective. With Monday’s 2.27% jump in the NASDAQ, we decided to look into the tech sector, which is one of the top three in the small cap space.
Below is the six month plot for Nanometrics, Inc. (NASDAQ – NANO - $12.71) which illustrates a potential buying spot in what is roughly a trough in a technical head and shoulders pattern that started in October of last year.
NANO 6-Month Chart
Nanometrics is a supplier to the LED and integrated circuit markets. The Company provides high-performance process control metrology and inspection systems used primarily in the fabrication of integrated circuits, high-brightness LEDs, discrete components, and data storage devices in the United States, South Korea, China, Taiwan, and internationally. It offers automated metrology systems that provide optical critical dimension, thin film metrology, and wafer stress for transistor and interconnect metrology applications; and the Lynx platform enables cluster metrology factory automation for wafer metrology applications, such as optical critical dimension metrology and thin film process control. The Company's automated and integrated systems are also used in various process control applications, including dimension and film thickness measurement, device topography, and defect inspection, as well as used in the analysis of various other film properties, such as optical, electrical, and material characteristics. Its process control solutions are deployed in the fabrication process from front-end-of-line substrate manufacturing to high-volume production of semiconductors and other devices, as well as to wafer-scale packaging applications.
The first check in the box is the valuation from the P/E perspective. The forward P/E is at 13.7x while the trailing is 19.3x on forecast revenue growth of 15% on average for 2016 and 2017 over 2015. Additionally, EPS is forecast to go from $0.26 per share in 2015 to $0.62 in 2016 and $0.93 in 2017. By the way, the Company has beaten quarterly estimates for three out of the last four quarters so our confidence in future EPS forecasts is high.Plus, a gross margin of 49% versus the industry average of 30% is one of the major factors in trusting that Nanometrics will translate the revenue growth into EPS performance. Finally, a short float of 3.9% is another technical indicator that points in a positive way for a buy on NANO.
Another important attribute we believe is important at the present time is long term debt. As of the end of 4Q15 had zero! This is the icing on the cake and we think NANO climbs back to the $15 level over the next six months.
Have a great day!
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