A couple days ago, I dashed off a quick post chronicling two (virtual) trades that I made on the morning of Friday, July 19. The first was an additional investment in Synacor Inc. (SYNC), based on the premise that if I felt the stock was undervalued at $3.52 a share, I should really consider it even more undervalued at $3.00 a share. The second was a new investment in Volterra Semiconductor Corp, which, now that I have a little spare time I feel I should explain in more depth.
Volterra Semiconductor Corp (VLTR)
Current Price (as of close, Thursday, July 18, 2013): $15.99
First, the basics: Volterra is a manufacturing company in the opaque but remarkably pivotal industry known by the technojargon terminology of "semiconductors". Bascially, this is the industry that designs, makes, and sells all the various kinds of computer chips that allow ... well, basically everything we use on a daily basis to run. Volterra, like so many semiconductor companies, exists in a much narrower band of the industry, specifically that of voltage regulators.
In a computer or other sensitive electronic instrument, it is generally very important that the voltages that are used by the chips and components maintains a controlled and consistent level. Unfortunately, every system has noise and imperfection; add in the fact that almost all computer systems get their power from an alternating current power line (50 points to Nikola Tesla), a computer or electronic system needs to have components that ensure that the noisy, messy and potentially alternating voltage coming into the system gets turned into a constant, consistent, controlled voltage before it gets used. That's where voltage regulators and analog/digital power management devices, like those made by Volterra, come into play.
The good news for Volterra is considerable. Voltage regulators aren't going anywhere anytime soon, and with a still increasing stockpile of cash and effectively no debt, neither is Volterra. Nevertheless, over the last year, Volterra has dropped noticeably: as high as $24 a share a year ago, VLTR dropped as low as $13 a share in late April. This precipitous drop is tied to the declining laptop/notebook market: notebooks have made up as much of a third of Volterra's revenue, and with notebooks being replaced by smartphones and tablets, those sales have dropped quickly in the last few years. This seemingly convinced investors that VLTR's price/book ratio was far too high, and VLTR has stayed a low level.
In spite of this drop, Volterra is still a very strong company. Along with its hefty cash store, Volterra is still doing a very solid business providing regulators and chips for high-performance server systems, and is building a promising new business in the solar energy industry. Though their low price and price/book ratio is still tied to the declining notebook market, Volterra has been aware of the notebook decline for sometime, and has been deemphasizing notebooks as a component of their R&D for almost a year. In an industry where products get turned over and replaced very quickly (as often as once every year or two), that foresight will pay off quite soon. Also, the power management semiconductors market is highly fractured, creating the potential for large, established players like Volterra to absorb the business of smaller companies that don't weather the laptop retraction as well.
Overall, with a low forward P/E ratio of 16, a solid cash pile, no debt, solid business management and almost $3 million in insider ownership, VLTR appears to have a considerable amount of long-term upside potential and very little long-term downside potential. And, with an earnings announcement on Monday the 22nd and low expectations already folded in from the declining notebook market, if forward earnings beat estimates by a noticeable amount, there's even the potential for a large short-term upside (over the next three months). To me, VLTR seems like a very solid (if not necessarily very fast cash-in) investment.
The good news for Volterra is considerable. Voltage regulators aren't going anywhere anytime soon, and with a still increasing stockpile of cash and effectively no debt, neither is Volterra. Nevertheless, over the last year, Volterra has dropped noticeably: as high as $24 a share a year ago, VLTR dropped as low as $13 a share in late April. This precipitous drop is tied to the declining laptop/notebook market: notebooks have made up as much of a third of Volterra's revenue, and with notebooks being replaced by smartphones and tablets, those sales have dropped quickly in the last few years. This seemingly convinced investors that VLTR's price/book ratio was far too high, and VLTR has stayed a low level.
In spite of this drop, Volterra is still a very strong company. Along with its hefty cash store, Volterra is still doing a very solid business providing regulators and chips for high-performance server systems, and is building a promising new business in the solar energy industry. Though their low price and price/book ratio is still tied to the declining notebook market, Volterra has been aware of the notebook decline for sometime, and has been deemphasizing notebooks as a component of their R&D for almost a year. In an industry where products get turned over and replaced very quickly (as often as once every year or two), that foresight will pay off quite soon. Also, the power management semiconductors market is highly fractured, creating the potential for large, established players like Volterra to absorb the business of smaller companies that don't weather the laptop retraction as well.
Overall, with a low forward P/E ratio of 16, a solid cash pile, no debt, solid business management and almost $3 million in insider ownership, VLTR appears to have a considerable amount of long-term upside potential and very little long-term downside potential. And, with an earnings announcement on Monday the 22nd and low expectations already folded in from the declining notebook market, if forward earnings beat estimates by a noticeable amount, there's even the potential for a large short-term upside (over the next three months). To me, VLTR seems like a very solid (if not necessarily very fast cash-in) investment.
