Square Circle

Authentic: A Real Buy at Sub-IPO Price

I think you fail to cover some major points in this analysis, including:

1. Market size - PC market is well understood, and limited in size, due to a combination of factors, including lack of compelling use case for consumers (and enterprises, for that matter), and low price point. Mobile opportunity is much smaller but faster growing, and likely driven by m-commerce, which has been predicted to take off for years, and has limited adoption outside of Asia.

2. Competition - UPEK and Validity are formidable, while point product chip vendors always have to consider the threat from new market entrants (especially entrance through tech buys). See Sirf vs. Broadcom/Global Locate or look at Omnivision for examples of this. What is Authentec's sustainable competitive advantage? If you don't understand this, you better not invest. FYI, IP is a very limited defense (and is almost always fleeting in nature). If this ends up being a commodity product, good luck competing with the large IC vendors.

3. Valuation - you mention relative multiples (i.e. P/E vs. comps), P/E vs. growth and DCF as your methods for valuing the business, but fail to elaborate on the inputs for the DCF, and your ability to confidently forecast earnings in a nascent, and some would say, niche market. If the "E" and "E growth" are significantly lower, a compelling P/E doesn't really mean much. Analysts often are wrong, and always are conflicted, so it is poor form to agree without providing justification (3rd party research is wrong more often that the Street).

4. What do people misunderstand about the opportunity that leads them to value it incorrectly?