Even though OmniVision Technologies (NASDAQ:OVTI) has key components in the iPad 3 and was recently upgraded by a broker, the stock may be a hold here as cyclical stocks are best bought at the bottom of the cycle not at the middle of the cycle. The valuation metrics suggest that the stock is attractive on multitude levels but earnings are expected to decline in FY12, ending April, as well as FY13, suggesting we are not at the bottom of the cycle yet. Below is an in depth look at the valuation metrics and stock chart.
Valuation: OmniVision Technologies' trailing 5 year valuation metrics suggest that the stock is undervalued as all of the metrics are below their respective 5 year averages. OmniVision Technologies' current P/B ratio is 1.1 and it has averaged 1.6 over the past 5 years with a high of 2.6 and low of 0.7. OmniVision Technologies' current P/S ratio is 0.9 and it has averaged 1.3 over the past 5 years with a high of 2 and low of 0.6.
Price Target: The consensus price target for the analysts who follow OmniVision Technologies is $22. That is upside of 36% from today's stock price of $15.86 and suggests that the stock is undervalued at these levels. This also suggests that the stock has significant upside and is an attractive opportunity at these levels.
Forward Valuation: OmniVision Technologies is currently trading at about $16 a share with analysts expecting EPS of $1.44 next year for a forward P/E ratio of 11. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. Skyworks Solutions (NASDAQ:SWKS) is currently trading at about $26 a share with analysts expecting EPS of $2.14 next year, an earnings increase of 14% y/y, for a forward P/E ratio of 11.9. STMicroelectronics (NYSE:STM) is currently trading at about $5 a share with analysts expecting EPS of $0.47 next year, an earnings increase of 135% y/y, for a forward P/E ratio of 10.1. Microchip Technology (NASDAQ:MCHP) is currently trading at about $31 a share with analysts expecting EPS of $2.29 next year, an earnings increase of 12% y/y, for a forward P/E ratio of 13.6. The mean forward P/E of OmniVision Technologies' competitors is 11.9, which suggests that OmniVision Technologies is fairly valued relative to its publicly traded competitors.
Earnings Estimates: OmniVision Technologies has beat EPS estimates 3 times in the past 4 quarters. The company's EPS figures have come in between 0 cents and 16 cents from consensus estimates or about 0% to 50% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside from earnings surprises.
Price Action: OmniVision Technologies is down 53.58% over the past year, underperforming the S&P 500, which is up 0.8%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $18.59 and above its 200 day moving average, which sits at $16.60.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.