MICRO CAP GEM
MLAB
It turns out a pretty boring day and I spent some time to look into some small stocks. MLAB is another company similar to UTMD, a sleeper and a microcap. Nonetheless, I really like this little company because (1) consistency, the company has been consistently making money for the past ten years, despite a rather severe recession in 2001-2002; (2) steady and decent revenue and earning growth (about 10%); (3) margin is improving steadily; (4) very significant management ownership (about 25%); (5) strong balance sheet with large cash position ($3.3/sh), no debt; (6) a decent level of dividends (1.9% yield); (7) stock buyback; (8) decent return on equity (15%) and on capital (29%); For the purpose of assessing this company, ROC is a more appropriate measurement as its balance sheet is severely underleveraged. (9) valuation is reasonable. It is currently traded at 17X of its FY06 (March/06) EPS estimate (0.85); However, if we take the cash out, it is traded at 14X, definitely at a discount to S&P and its peers. Assuming a decent growth in FY07 (0.93), it is traded only 13X of its FY07 EPS. I believe it should be traded at 20X, which will put it at 21.5. My one year target is 20, representing 33.3% return.
The obvious drawback is that it is a micro cap with only 3 million shares outstanding and the company continues to buy them back.
It turns out a pretty boring day and I spent some time to look into some small stocks. MLAB is another company similar to UTMD, a sleeper and a microcap. Nonetheless, I really like this little company because (1) consistency, the company has been consistently making money for the past ten years, despite a rather severe recession in 2001-2002; (2) steady and decent revenue and earning growth (about 10%); (3) margin is improving steadily; (4) very significant management ownership (about 25%); (5) strong balance sheet with large cash position ($3.3/sh), no debt; (6) a decent level of dividends (1.9% yield); (7) stock buyback; (8) decent return on equity (15%) and on capital (29%); For the purpose of assessing this company, ROC is a more appropriate measurement as its balance sheet is severely underleveraged. (9) valuation is reasonable. It is currently traded at 17X of its FY06 (March/06) EPS estimate (0.85); However, if we take the cash out, it is traded at 14X, definitely at a discount to S&P and its peers. Assuming a decent growth in FY07 (0.93), it is traded only 13X of its FY07 EPS. I believe it should be traded at 20X, which will put it at 21.5. My one year target is 20, representing 33.3% return.
The obvious drawback is that it is a micro cap with only 3 million shares outstanding and the company continues to buy them back.
posted by ZIGZAG at 2/17/2006 01:22:00 PM
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