National InstrumentsNATI35,42 $
Today we have an extremely speculative idea.: take shares in the manufacturer of equipment and software for high-tech industries National Instruments (NASDAQ: NATI), to earn on the rebound.
Growth potential and validity: 28,5% behind 2 years excluding dividends; 12% per annum during 15 years including dividends.
Why stocks can go up: because they fell, but the potential of the company is very good.
How do we act: we take shares now by 34,50 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
NATI is engaged in the production of goods, necessary for the production of high-tech products, also provides services in this area.. NATI hardware is used by its customers to program their own products..
According to the company's annual report, its revenue is divided as follows:
- Goods - 88,76%. It's like iron, and software for it. Segment gross margin — 68,86% from its proceeds.
- Software Maintenance - 11,24%. Segment gross margin — 91,15% from its proceeds.
Target markets for the company are semiconductors, aerospace and transport.
Revenue by country and region:
- USA - 39%.
- Other countries in the Americas — 1,6%.
- Europe, Middle East and Africa - 25,6%.
- Asian-Pacific area - 33,8%.
Arguments in favor of the company
Fell down. Since November 2021, the company's shares have fallen sharply, and for no particular reason: with 45 to 34.5 $. Think, this will allow us to capitalize on the rebound.
Promising. 5G, internet of things, self-driving cars and other wonders of the brave new world - all these things play into the hands of NATI, since its hardware and software are needed for processes in these areas.
Positive changes. The company is intensively developing the software segment, and planned, that by 2025 it will give already 30% proceeds. And software is almost always more marginal than a piece of iron - so for long-term investors this is a very positive moment..
Diversification. None of NATI's 35,000 clients gives the company more 3% from proceeds. It strengthens her negotiating position.
Can buy. In relative and absolute numbers, the company is inexpensive:
- P / S = 3,03 and P / E = 42,2. It's not very small, but not insanely much.
- The capitalization of the company is 4.59 billion dollars.
This factor, combined with all of the above, can lead to a buyer's company.
Dividends. The company pays 1,12 $ per share per year, which gives almost 3,2% per annum. By the standards of high-tech companies, this is gigantic money., so stocks can rise simply due to the influx of payout lovers into them.
What can get in the way
Logistics. The main production of the company is located in Hungary and Malaysia, and sales all over the world. Therefore, you should be mentally prepared for, that the current logistical crisis will affect its reporting.
Competitors. The company has a number of strong rivals: Advantest, Anritsu, Fortive, Keysight, Rohde & Schwarz и Teradyne. The need to maintain a proper distance between themselves and them will force NATI to spend money on acquiring various overpriced startups..
Accounting. The company spends more on dividends, what does he make, which creates the risks of cutting these very dividends and the subsequent fall in shares. The level of debts of the company is considerable - 864 million, of which 389.944 million must be repaid during the year. And she doesn't have much money at her disposal.: 312,939 million debts of counterparties plus 142.883 million on accounts.
Due to rising rates, rising cost of loans and the resulting complication of servicing the company's debts, payments can cut - especially because of the company's need to expand its business.
Price. P / E and P / S companies do not repel potential buyers such as a fund or a large corporation, but from the point of view of an ordinary investor, at the current value, the company cannot be considered undervalued.
What's the bottom line?
Shares can be taken now by 34.5 $. And then there are two options.:
- hold the stock until it returns to the level 45 $. Think, we will achieve it in the next two years. Probably, during this time, the company will receive an offer to purchase. Well, or the progress of the software division will shock investors and they will pump up NATI shares anyway;
- keep shares next 15 years and receive dividends.
Now trading on the St. Petersburg Exchange opens very late, so we won't be able to realize the temporary advantage just yet, that existed before, when trading in US stocks opened in Russia on 7 hours earlier, than in the USA. Let's hope so, everything will be back to normal soon.
In this case, you should look at the news section on the company's website, to sell shares in Russia before, how investors will react to the sad news about the cancellation of dividends.
And of course, remember that, that idea is very speculative, so don't touch those stocks, if you're not ready for it, that they will be shaken.
