On Friday, Peregrine Semiconductors (PSMI) saw its stock dive down faster than its avian namesake, dropping over ll% from $10.88 a share from $9.68 a share. Though tracing the genesis of a stock move is always a bit fuzzy, this particular collapse appeared to be motivated by a downgrade released by RBC Capital, in which an analyst changed his rating of the stock from "outperform" to "market perform". According to Reuters, the analyst, he downgraded the stock because Peregrine chips (in Murata modules) were not found in the new iPhone 5S and iPhone 5C, even though they were used in the iPhone 5, indicating that "growth in the market is moving towards cheaper technology".
Now, there are several things wrong with this picture. First, though the analyst did downgrade the stock, his price target dropped from $22.00 a share to $16.00 a share, still well above its current price. Second, though it is by far the most visible player in the smartphone industry, Apple is far from Peregrine's only end customer, with Peregrine chips going into phones from most smartphone manufacturers, including the other giant in the industry, Samsung. Finally, though the analyst said that the new iPhones lacked the Murata/Peregrine module, there doesn't appear to be any evidence to support this. The several teardowns of the iPhone 5S show an RF switch next to the new Qualcomm transceiver that has yet to be identified. But it sure looks a lot like a Murata module.
This, then, would seem to be one of those situations in which the rather cursory attention that institutional investors pay to small-cap companies gives an advantage to those willing to do a little research. The analyst seems to have been thrown by the fact that the possible Murata module is now on the backside of the logic board, rather than the front side with the other RF chips as it was in the iPhone 5. So PSMI (which the analyst values at $16.00 a share even without a design win in the new iPhones) is clearly worth a heck of a lot more than $9.68 a share. Of course, I can only say that if I'm willing to back it up with a wager, so when markets open, I'll buy 100 more shares of PSMI at the opening price, provided it is still below $10 a share.
Update 1: Turns out I was the victim of my own cursory examination of the facts. I stated that the RBC analyst lowered his price target to $16 a share, based on the report in Reuters. In reality, the analyst lowered his price target from $16 a share, down to $10, considerably closer to the still quavering stock. I probably should have been suspicious of the idea that an analyst had a price target of $22 a share on stock trading at $11 a share, but that's what you get for researching stocks after midnight.
Update 2: Peregrine's stock tumbled even further this morning, opening at $9.12 a share. Investors seem quite confident in RBC's downgrade, which has been reiterated by a second downgrade (also to a price target of $10) by an analyst at Cannacord, which naturally makes me feel slightly less confident in my appraisal of the facts. Nevertheless, Peregrine seems to me to be significantly undervalued, even at $11 a share, so I'll stick with my picks for now.
Update 1: Turns out I was the victim of my own cursory examination of the facts. I stated that the RBC analyst lowered his price target to $16 a share, based on the report in Reuters. In reality, the analyst lowered his price target from $16 a share, down to $10, considerably closer to the still quavering stock. I probably should have been suspicious of the idea that an analyst had a price target of $22 a share on stock trading at $11 a share, but that's what you get for researching stocks after midnight.
Update 2: Peregrine's stock tumbled even further this morning, opening at $9.12 a share. Investors seem quite confident in RBC's downgrade, which has been reiterated by a second downgrade (also to a price target of $10) by an analyst at Cannacord, which naturally makes me feel slightly less confident in my appraisal of the facts. Nevertheless, Peregrine seems to me to be significantly undervalued, even at $11 a share, so I'll stick with my picks for now.
