Kowloon, Hong Kong-based Silicon Motion Technology Corporation (SIMO), is a leading player in supplying NAND flash controllers for solid-state storage devices and in providing SSD controllers. It has a solid portfolio of controller technologies used in storage products such as SSDs and eMMC+UFS devices. The company has shipped more than six billion NAND controllers over the last 10 years, more than any other company globally.
The company faced several supply chain challenges last year. It nevertheless managed to generate stable earnings and revenues by optimizing its limited foundry wafer supply. And the company is optimistic about its prospects this year and expects 2022 to be “another banner year." SIMO is focusing on expanding and strengthening its SSD controller program engagements with PC OEMs and eMMC/UFS controllers for smartphones, automotive applications, and IoT/smart devices. It also plans to launch its next-generation enterprise-class SSD controllers soon, which could be a significant growth driver.
SIMO’s shares have gained 26.2% in price over the past year to close yesterday’s trading session at $72.87. However, they have slumped 23.3% amid the broader market pullback. But Wall Street analysts expect the stock to rally by 65.5% in the near term.
Click here to checkout our Semiconductor Industry Report for 2022
Here’s what could shape SIMO’s performance in the near term:
Attractive Shareholder Returns
Last December, SIMO authorized a new share repurchase program and approved related cash disbursement for the company to repurchase up to $200 million of its American Depositary Shares (ADSs) over six months. SIMO repurchased $50 million of its ADSs at an average price of $89.85 that month. Also, in October, SIMO declared a $2.00 per ADS annual dividend, which was 43% higher than its prior dividend, to be paid in quarterly installments of $0.50 per ADS. On Nov. 24, 2021, the company paid $17.40 million to shareholders as the first installment of the new annual dividend.
Stellar Growth in its Last Reported Quarter
SIMO’s net sales increased 83.7% in price year-over-year to $264.36 million in its fiscal fourth quarter, ended Dec. 31, 2021. Its gross profit stood at $131.23 million, up 98.7% year-over-year. Also, its operating income came in at $72.15 million, representing a substantial increase from its $399,000 year-ago value. The company’s non-GAAP net income grew 125.8% from the prior-year quarter to $67.54 million, while its non-GAAP earnings per ADS increased 120.9% year-over-year to $1.90.
Impressive Profitability
SIMO’s 28.93% EBITDA margin is 105% higher than the 14.12% industry average, while its 21.68% net income margin is 256.8% higher than the 6.08% industry average Also, its 11.81% the levered FCF margin is 17.4% higher than the 10.06% industry average.
And SIMO’s 32.90%, 20.59%, and 25.59% respective ROE, ROA, and ROTC compare with the 7.53%, 3.85%, and 4.97% industry averages.
Discounted Valuation
In terms of forward P/E, SIMO is currently trading at 9.61x, which is 60.9% lower than the 24.59x industry average. And its 1.90 forward EV/Sales ratio is 45.2% lower than the 3.46 industry average. SIMO’s 3.09x and 10.61x respective forward Price/Book and Price/Cash Flow are 36.2% and 43.7% lower than the 4.84x and 18.86x industry averages.
POWR Ratings Show Promise
SIMO has an overall B rating, which translates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a grade of B for Quality. Its higher-than-industry profit margins justify this grade.
SIMO has an A grade for Value, which is consistent with its discounted valuation.
Among the 97 stocks in the B-rated Semiconductor & Wireless Chip industry, SIMO is ranked #13.
Beyond what I have stated above, one can view SIMO’s grades for Stability, Sentiment, Momentum, and Growth here.
View the top-rated stocks in the Semiconductor & Wireless Chip industry here.
Bottom Line
SIMO enjoys a significant market share globally and given the substantial growth in the semiconductor market and demand across industries, SIMO’s prospects look bright. The company achieved all-time records for full-year revenue and earnings per share, and its sales of SSD controllers hit a new record quarterly high in its last reported quarter. Furthermore, analysts expect SIMO’s revenues to increase 24.3% in the current year, while its EPS is expected to grow 29.1% in the same period. So, we think it could be reasonable to buy the dip in the stock.
Note that SIMO is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
How Does Silicon Motion Technology Corporation (SIMO) Stack Up Against its Peers?
SIMO has an overall POWR Rating of B. However, one could also check out these other stocks within the Semiconductor & Wireless Chip industry with A (Strong Buy) rating: STMicroelectronics N.V. (STM), inTest Corporation (INTT), and Photronics, Inc. (PLAB).
Click here to checkout our Semiconductor Industry Report for 2022
SIMO shares were unchanged in premarket trading Thursday. Year-to-date, SIMO has declined -22.84%, versus a -7.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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