Silicom Selloff Overdone; Expecting Quick Recovery

Silicom Ltd. is a company that has experienced strong growth over the last couple of years but has sold off recently after a flat quarter. I think the drop in share price has been way overdone and now would be a good time to buy some shares.

Silicom Ltd. engages in the design, manufacture, marketing, and support of connectivity solutions for a range of servers and server-based systems in Israel, the United States, and internationally. It primarily manufactures server networking cards with and without bypass (Server Adapters), and legacy products, including connectivity solutions for portable personal computers and broadband Internet access products.

The company’s revenue and net income have been growing quickly over the last year with the exception of last quarter which was essentially flat (see chart below).

In the conference call for Q3 07 the CEO of Silicom Ltd. said purchases can vary from quarter to quarter so the flat results last quarter are not indicative of a trend. He also stated he is optimistic about future growth.

I don’t think the results Silicom Ltd. reported last quarter merited such a huge sell off (the stock is off 50% from its yearly high). However, I think the overreaction provides a nice buying opportunity.

The stock price of Silicom Ltd. has found support and is starting to rebound. The stock is also trading at a nice valuation (trailing PE of 15). If Silicom Ltd. can continue to show growth like they have in the last couple of years the stock price will quickly recover.

Disclosure: I have no position in SILC.