My mid-year review of GIG
INTRO Here's my semi-annual exercise to see if I remember why I own the stocks I own, and so I can check back and see if their stories have changed. I post in case it helps others too.
GigPeak (was called GigOptix which was called Lumera which was spun off from MicroVision)
GIG (market cap was $0.135B EOY2015 is $0.111B mid2016)
GigPeak is a producer of high-end electro-optic communications switches. Through a variety of technologies, some of which have few moving parts, they are able to produce and sell the switches that allow the very high speed Internet connections that are considered necessities (that only a few years ago would have been considered luxuries). They have a few competitors, but many of them rely on complicated devices with moving parts that begin to encounter physical material limitations. GigPeak's products are the sorts of things that managers may not understand, but that the technicians can best appreciate. The result is a different kind of marketing, which is probably similar to the early days of f5. The products sell on technical merit more than on marketing splash. They have recently become profitable, but just barely, which produces a very high Price/Earnings ratio of ~ 40. If the trend continues, the company and the stock should attract more investment attention.
Two main issues make it less appealing for major investors. The company continues to grow through mergers and acquisitions, which confuses the financial reports. The company also has a relatively small valuation, which is under the limit for some firms, and which also limits the amount of funds a major investor can deploy. There are probably similarly-sized companies with simpler finances and technologies, which are easier for analysts to deal with. The financials are improving, but those two hurdles may limit the demand - until a major investor acquires a major holding, in which case others will possibly join in. Of course, that's one of the scenarios that makes investing in tiny companies a profitable strategy - if it happens.
I will continue to hold because my patience may finally be rewarded. I probably won't buy more because their growth strategy increases my confidence in the specifics of their operations. (Another bit of evidence that increases my doubt is the drop in the stock even the revenues are rising.) I also already have a large enough holding that if they maintain their roughly 20% growth in revenue, and if they attain a price/sales of ~6, then in about three years the stock could see a five-fold appreciation.
DISCLOSURE LTBH of LMRA since 2004. Holding because I have enough shares to positively impact my life, but not so many that I feel too exposed to risk.
(I've also collected links to the other discussion boards and my other stocks over on my blog trimbathcreative.wordpress.com |
