Today we have a speculative investment aide: take shares of solution provider for semiconductor production SiTime (NASDAQ: SITM), in order to make money on the growth of these shares after the fall.
Growth potential and validity: 22% behind 15 Months; 59% behind 3 of the year; 11% per annum during 15 years.
Why stocks can go up: because stocks have fallen, and the company can be bought.
How do we act: take now 188,15 $.
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.
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Investment editorial office
What the company makes money on
SiTime designs specialized systems and devices, needed for the production of semiconductors: oscillators, resonators and clock integrated circuits. She doesn't produce anything herself., fully focusing on design and intelligent services. But components made to her order and based on her designs are sold under her brand..
SiTime has a moderately boring, but a fairly detailed presentation with the technical characteristics of its solutions.
Basically, the company does not sell its solutions directly, and through dealers and distributors. But the end users of its products are manufacturers of complex electronics., integrating SiTime solutions into their products.
The company's annual report is not rich in details about the business and segments.
Revenue by country and region:
- Taiwan - 30,34%.
- Hong Kong - 37,7%.
- USA - 6,49%.
- Other, unnamed countries - 25,47%.
Specified distribution, however, - it's a certain convention: according to company estimates, most of the end users of its products are in the United States. So SiTime sales within Greater China are, in fact, deliveries to local contractors of American customers.
Arguments in favor of the company
Fell down. Since December 2021, stocks have fallen sharply: from 334 to 188,15 $. The main reason for the fall is seen in the obscene price of the company, but we can hope for a rebound in stocks because of the moments., listed below.
Semiconductors. Goodness for the company will be a great demand for semiconductors and electronic products in the United States, and in the world as a whole, as well as large investments in the expansion of production capacities in this area.
Looking wider, then the complexity of the technological infrastructure in the world will favor the company's business in the coming years 15: SiTime solutions here will be very much in place.
There is progress. The company is growing not only revenue, but also the level of business margins: over the past two years, the operating margin has increased from 8 to 30%. Wherein, showing startup growth rates, SiTime is a profitable enterprise, standing firmly on his feet. This distinguishes it from many "promising companies", who have been drowning in losses for years.
Inexpensive, if I may say so. In absolute numbers, the company is cheap: its capitalization is only 3.92 billion. This will make it easier to pump up its shares at the expense of those, who will buy into its "halo of prospects". And such, probably, there will be a lot.
Clean accounting. On the company's accounts there is money in 12 more than the sum of all her debts. That's a good thing in an era of raising the stakes., when heavily indebted companies can scare off investors.
Can buy. I believe, what, considering all of the above, it is more than likely that the company will be bought by someone bigger.
What can get in the way
Concentration. According to the annual report, a significant part of the company's revenue comes from the three largest customers: Pernas — 24%, Arrow — 14% and Quantek — 10%. A change in the relationship with one of them can negatively affect the company's reporting..
I would also like to point out, that one unnamed end customer of SiTime solutions provides 22% proceeds. Reducing their order volumes can hurt the company.
Logistics. The company does not have its own production, so logistical problems, extremely common in the current environment of an endless pandemic, at the enterprises of its counterparties will quickly become its problems.
Not cheap. SiTime, even after the recent fall, is not cheap: P / S she has 17,88, a P / E — 122,87. Considering this, company shares can shake.
Accounting of the future. The company managed to increase its margin, focusing on the main thing - intelligent services with high added value, giving production and sales to third-party companies. But if the management of SiTime decides, that wants to grow in other areas of the semiconductor business, this will require a huge investment from her., which will lead to an increase in debt. Or at least she can decide to develop direct sales, which in the future can give a good result, but here and now will require serious investments.
What's the bottom line?
We take shares now by 188,15 $. And then we have the following options.:
- wait for growth until 230 $. Think, we will reach this level in the next 15 Months;
- wait for growth until 300 $. Better get ready to wait here 3 of the year;
- hold shares 15 years, while the company grows.
Certainly, these actions will be volatile due to their high cost., but SiTime is the case., when a company has most of the advantages of a startup without the most significant disadvantages, - it's still a business, not a money-burning factory. Finally, inflated P / E better, than none at all.
