A Seeking Alpha reader recently suggested I take a look at an undervalued tech supplier named Orbotech (ORBK). It is a contrarian investor's dream. The stock price has been cut in half over the last year or so, the company recently revised revenue guidance down and it is located in Israel to boot. However, that being said, the firm has rock bottom valuations, a huge cash balance, some positive catalysts and should have a much brighter 2013. Intrepid and patient value investors should consider building a position in this cheap equity for the long term at these price levels.
"Orbotech Ltd. engages in designing, developing, manufacturing, marketing, and servicing yield-enhancing and production solutions for specialized applications in the supply chain of the electronics industry." (Business description from Yahoo Finance)
6 reasons Orbotech has long term value at $7.50 a share:
- Half of the stock's net market capitalization is in net cash.
- The stock is selling at the bottom of its five year valuation range based on P/B, P/E, P/CF and P/S.
- Although the company revised full year revenue down to $430mm to $450mm for full year 2012, analysts still have a consensus earnings estimate of 78 cents a share for FY2012.
- About a 1/3 of the company's revenue are from recurring and relatively high margin sources (Mainly maintenance). In addition, accelerated rollouts of smart TVs and probably the much anticipated TV product from Apple (AAPL) should goose revenues by yearend and into FY2013.
- In addition to Orbotech's massive cash balances, it is dirt cheap at just 67% of book value and about 6 times FY2011's operating cash flow. It is also relatively insulated from the problems of Europe (only 13% of revenues).
- The 6 analysts that cover the stock have a median price target of $10.50 a share on Orbotech.
Disclosure: I am long AAPL.