PLX Technology Inc. (PLXT) may have hit rock bottom a few months ago, but the company has made an impressive comeback lately. Simon J. Michael's Balch Hill Capital released an interesting regulatory filing on January 30, 2012 that sent shares sharply higher. Over the subsequent weeks, the stock moved from around $3.00 to more than $3.70 per share.
According to a recent regulatory filing:
Mr. Michael believes that management should seek a buyer for the issuer to take advantage of the tremendous market interest in the Issuer's PCI Express switches, and particularly its Gen3 switches. These switches are becoming strategically important to customers in a number of areas, particularly storage and networking. The combination of the emergences of PCI Express as the dominant high speed inter-connect, the strategic value of the Issuer's dominant position in PCI Express switches, and the cost synergies a large acquirer could recognize, will enable the issuer to achieve an acquisition value substantially higher than what the Issuer could achieve as a standalone concern.
A Leader in an Important Market
PLX Technology is the market share leader in PCI Express switches and bridges due to its early adoption of new trends and high differentiation from competitors. Revenues from the PCI Express division accounts for 52.3% of its total revenues, which is up from 47.7% of its total revenues during the same period in 2010, according to regulatory filings.
PCI Express is the primary interconnection mechanism inside computing systems today and is present on almost every system building block. By remaining software compatible with the previous, ubiquitous parallel technology, the new switched serial PCI Express quickly became the connection of choice for the majority of devices in the industry.
A Look at PLX Technology's Valuation
PLX Technology Inc. currently trades with a market capitalization of around $164 million and an enterprise value of around $154 million. And last quarter, the company reported $9.6 million in cash and shareholders' equity of $80.3 million. This means that a buyer would be paying just around $83.7 million on top its net assets for its growth.
While the company swung to a lost during the third quarter, this was because of its higher R&D costs and amortization of intangible assets. The company's net revenues actually increased marginally from $30.23 million to $31.1 million. And the improvements in net revenues were attributed towards higher sales of PCI Express products.
The Valuable PCI Express Business
PLX Technology's PCI Express business grew at a 12.67% clip during the past quarter, with margins that appear to exceed its other businesses. While this is not explicitly broken down in its financial statements, comments made in the MD&A section suggest that this is likely the case, since margin pressures are being attributed to other product lines.
With PCI Express revenues hitting $16.26 million last quarter, that division of the company alone is trading at a relatively modest revenue multiple of 10x given its industry leadership position and growth rates. And given the fact that gross margins are otherwise declining, it stands to reason that the company may not be favorably valued as a part of the whole.