Photronics (NASDAQ:PLAB) is a stock I have not wrote about before. However, with technology stocks underperforming in the first quarter, it recently came onto my radar as I reviewed the sector for possible bargains. It is cheap, starting to gain some positive attention and is set to have stronger performance as we approach FY2014 (which the company starts in October).
Recent positives for PLAB:
- The shares were highlighted on Barron's this week as a tech play that might have 50% upside over the next 12-18 months.
- Consensus earnings have improved nicely for FY2013 and FY2014 over the last two months.
- It posted quarterly earnings that beat estimates on the bottom for the fourth straight quarter in Mid-February. It was the 11th quarter of the last 12 that the company has beaten consensus on the bottom line.
Photronics designs and manufactures photomasks for North America, Asia, and Europe. Photomasks are high precision photographic quartz plates containing microscopic images of electronic circuits.
Four additional reasons PLAB is going higher from $6.50 a share:
- The stock is selling at just 71% of book value and 9.5x 2014's projected earnings. Its five year historical valuation based on forward earnings over the last five years has averaged 18.7.
- A better way to look at the value of the company is based on operating cash flow which is has grown some 40% over the last two fiscal years. The stock trades for less than 4x OCF currently.
- The median price target by the five analysts that cover the stock is $8.50 a share, $2 above the current stock price.
- It has a solid balance sheet with over $30mm in net cash (about 10% of its market capitalization). In addition, revenue growth is projected to be in the low double digits in FY2014 from approximately flat in FY2013.