kdo

The Long Case for OmniVision: Like Buying a Dollar for Twenty Cents

You know I've sort of put OVTI on the too hard pile and so let me play devil's advocate here. Obviously with the short interest here - someone is seeing something going on, so let's see. OVTI is a small time semiconductor manufacturer playing with much bigger players all around it on a commoditized product. It also has a very small number companies it is selling to, which give them immense pricing power over OVTI.

Let's see what's happened to their operations. NOP for the last quarter is down to $341K from $35.6 Mil. Interest Income now results as almost all of their "profit" of $4.1 Mil. But if we use that number and add in their cash hoard when making a valuation upon the enterprise, then we're double counting. Let's pay dollar for dollar of the cash, but not count that in our profit statement.

Cash Flows over the last 9 months has dropped precipitously from '06 too, mostly in the recent period. So they are having some serious operational changes. If we want to count CF to EV - over the last 9 months we have $28.5 Mil - $10.9 Mil Interest income bringing the starting NI number to $17.6 Mil on a company which competitively for all I know is striking disaster (I don't, I've only looked at numbers so far, but this is not exactly a company that seems to have a defineable moat and the last quarter brought $341K before tax). We can add back depreciation on the latest quarter, I'm not adding back the stock compensation for time's sake and it looks like a lot of the other cash flow is from changes in assets and liabilities. Purchase of capex seems to take the CF number negative - so perhaps the NI number is better. I know $17.6 Mil is only nine months, but it seems we have some sort of short term problem that needs investigation and the last quarter's number doesn't exactly give me a ton of hope that $17.6 isn't a vastly overstated figure going towards the future - especially when I see the short interest in the company. So I do question exactly what kind of company I'm buying after the EV, because I have no insight as to it's future earnings capability are. Answer what the short term operational difficulties are, exactly what the short case is (plus why it's wrong) and what their long term competetive picture is and you'll have a better case.