Kulicke & Soffa: Cheap Tech Stock On The Move

Apr.29.14 | About: Kulicke and (KLIC)

Summary

Kulicke & Soffa has moved up some 15% over the past five weeks.

The company revised guidance upward today and has also attracted the attention of an activist investor.

This cheap tech stock has a huge cash balance, improving business fundamentals and looks to be heading higher still.

Kulicke & Soffa (NASDAQ:KLIC) has been on the move since I last profiled it over five weeks ago. The stock is up some 15% since I last discussed why I think these tech shares are undervalued and the shares should have plenty of upside left. The stock has been pushed higher in the last week by two positive catalysts.

Company Overview:

Kulicke & Soffa Industries produces equipment and tools for use in the semiconductor industry. The company is the market share leader in the wire bond, wedge bond, stud bump and capillary markets.

A New Activist Stake:

A small activist investor Lemelson Capital has accumulated a ~1% stake in Kulicke & Soffa over the past year or so and has sent an open letter to company management pushing for Kulicke to push the company to use its huge cash hoard to reward shareholders. Lemelson wants the company to use $250mm (less than half of its net cash and marketable securities) to repurchase shares. Doing so at current stock prices would bump up earnings per share by an impressive one third.

Earnings And Guidance:

The company has reported results in line with estimates on top and bottom line expectations. Gross margins improved by 200 bps Q/Q and 450 bps Y/Y as mainstay ball bonder equipment sales increased much faster than wedge bonder equipment sales fell. More importantly, management bumped next quarter's guidance for revenue to be in the $165M-$175M range, well above a $154.4M consensus.

Valuation And Outlook:

Kulicke & Soffa has a lot going for it. Improving business fundamentals and margins, a new activist pushing for more shareholder friendly capital allocation actions and over $550mm in net cash and market securities on the books, this tech stock has a lot of positive catalysts.

In addition, its valuation is cheap. Subtracting net cash and the shares go for just 8x trailing earnings. Revenues should be flat to slightly down this year but consensus calls for revenues to increase in the mid-teens in FY2015 which begins October 1st. I am holding my shares and will add to my position should we get any significant decline in the overall market. It's a buy.

Disclosure: I am long KLIC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.