TRID and buying during earnings season
In general, I don't buy during earnings season. My humble analysis shows that very few companies that have great earnings continue the upward trajectory after earnings release. Most of the time there seems to be a bit of a pullback. Look at PCP - it hit $87 and is now down to $86 (ok, maybe not the BEST example, but you get the idea). Factor in the usual fears and odd events between earnings releases, and you'll find good buy opportunities.
TRID is a bit different because it sank before earnings. (While we didn't buy back in for LR, I did buy for my personal account. That was just greed on my part - I hoped to see it slip below $17 and get it for LR.)
In my opinion, TRID didn't go up so much as it returned to its holding point of ~$20. This is a $40 stock that is incredibly undervalued because of their options issue.
So should we buy back? And if not now, when? I do like this company and I see some things that really excite me about their release. For example, sales are up 73% (meaning earnings are up at least the same if margins are more or less the same). We also finally have clarity on the degree of impact from the options hit: $50M. Not sure how that will play out (for example, it could lower last year's earnings and make the earnings growth even higher!). But there seems to be a collective sigh of relief - more visibility means less risk.
Another interesting point is that the last quarter's sales were flat with the previous quarter's. That is actually great news: chip sales are very seasonal. For TVs to get sold in November/December, they must be built by September/October. In which case, TRID's chips are bought August/Sept. So the boom time for chip vendors typically precedes the holiday season.
Most chip companies sag by as much as 15% following this seasonal boom. Not TRID: they maintained sales. For TRID to have a strong quarter following that quarter is indicative of strong demand.
They went cautious this coming quarter - and that could mean that vendors pulled in orders to ship TVs faster (i.e. New Year's and Superbowl related sales). But the bottom line is that TRID is a strong company and a takeover target
Oh, and they added ~$80M in cash (a 70% increase in cash position). The options expense is non-cash, so that's pretty exciting.
So I would say that you should wait a bit for a pullback over the next few days. There is bound to be a bummer day that will push the market down a bit. But trying to time the price ($20 vs $19) seems strange within the context of my belief that this is a $40 long term price. They have a 18 P/E but are growing earnings 70%. Their stock price could double and they'd still be undervalued. And I continue to think they will be acquired.
TRID is a bit different because it sank before earnings. (While we didn't buy back in for LR, I did buy for my personal account. That was just greed on my part - I hoped to see it slip below $17 and get it for LR.)
In my opinion, TRID didn't go up so much as it returned to its holding point of ~$20. This is a $40 stock that is incredibly undervalued because of their options issue.
So should we buy back? And if not now, when? I do like this company and I see some things that really excite me about their release. For example, sales are up 73% (meaning earnings are up at least the same if margins are more or less the same). We also finally have clarity on the degree of impact from the options hit: $50M. Not sure how that will play out (for example, it could lower last year's earnings and make the earnings growth even higher!). But there seems to be a collective sigh of relief - more visibility means less risk.
Another interesting point is that the last quarter's sales were flat with the previous quarter's. That is actually great news: chip sales are very seasonal. For TVs to get sold in November/December, they must be built by September/October. In which case, TRID's chips are bought August/Sept. So the boom time for chip vendors typically precedes the holiday season.
Most chip companies sag by as much as 15% following this seasonal boom. Not TRID: they maintained sales. For TRID to have a strong quarter following that quarter is indicative of strong demand.
They went cautious this coming quarter - and that could mean that vendors pulled in orders to ship TVs faster (i.e. New Year's and Superbowl related sales). But the bottom line is that TRID is a strong company and a takeover target
Oh, and they added ~$80M in cash (a 70% increase in cash position). The options expense is non-cash, so that's pretty exciting.
So I would say that you should wait a bit for a pullback over the next few days. There is bound to be a bummer day that will push the market down a bit. But trying to time the price ($20 vs $19) seems strange within the context of my belief that this is a $40 long term price. They have a 18 P/E but are growing earnings 70%. Their stock price could double and they'd still be undervalued. And I continue to think they will be acquired.
posted by Andrew at
9:37 AM
2 Comments:
How do you get a P/E of 18 for TRID? Looks to me like it's 49.1 based on a $0.41 EPS
$0.41 for the year? Where did you get that?
They hit $0.18 in their March quarter alone when they hit $44M in sales. In the last 3 quarters they hit ~$200M in additional business, or almost 5x the March quarter.
TRID has not released earnings for the last 3 quarters, so any EPS you see on Yahoo or elsewhere is factually incorrect.
My P/E of 18 was based on some basic math: if they hit $0.18 at $44M, then a full year at $237M would put them at ~$1.05. That's how I got a P/E of 18
The key to my estimate is that margins are flat, making the revenue/earnings ratio constant. This was substantially agreed in the previous quarter's conference call, so I think I'm safe in assuming it to be close to reality.
(With a big exception being the legal/accounting fees for the options issue.)
This is what we have for sales:
Dec $70M
Sept $70M
June $52.2M
March $44.7M
The earnings will jump up another $0.06 for the March 2007 quarter (they estimate $60M vs $44M last year). In 10 weeks, their EPS will be $1.11, making the P/E 17.
If TRID is able to achieve 50% growth (very believable btw), then they have a forward P/E of 8.
Meanwhile, their cash position of ~$190M will probably grow to $270M if they equal last year's performance (but will most likely be higher due to higher sales).
A company growing 50% with a P/E of 18 and cash of $5 per share. Future prospects are also for even stronger growth and more cash per share.
I'm hard pressed to find a more attractive company.
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