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An Optical Illusion? MTSI Undervalued?

Oisin Breen profile picture
Oisin Breen


  • Starting at the end of July, MTSI fell from highs of $65.99 to $39.67 in just over a month.
  • Macom currently trades at $40.22 and is a long way away from recent highs.
  • The average price target from price-target aggregator Marketbeat is $49.67 (+20%).

(By Oisin Breen, Research)

Macom Technology Solutions (NASDAQ:MTSI), a Massachusetts-based technology company that specializes in providing data centres and telecommunications optical components, essentially the stuff that makes high-speed Telecom work, is a $2.5bn market-cap company that may well offer significant value for the year ahead.

Macom's share price plunged at the end of July '17, leaving the company potentially available at a bargain price. Source: Bloomberg

The Lie of the Land

Starting at the end of July, MTSI fell from highs of $65.99 to $39.67 in just over a month. This meant that in one month's time, almost all of the gains Macom had made over 2017 were wiped out. The drop was significant, coming in at around 40%, and was prompted by weakened Chinese demand for optical components. Guidance for Q4 2017 also came in under expectations. Consensus revenue expectations of $205m were undermined by Macom's own projections of $165m (-20%), whilst EPS guidance of $0.45-0.5 was far lower than the market's expected $0.76. The company's next earnings call comes in two weeks, and with a lot of doom and gloom about China already priced in, earnings already downgraded, and the company trading below even Stifel's pessimistic price target of $43, it is not too implausible to suggest that there's value in these near year-long MTSI lows.

Macom's 5-year figures and projections, including revenue, adjusted margins, and adjusted EPS, suggest a company in good health, contrary to the company's relatively low share price. Source: Seeking Alpha/Macom

The Numbers

Macom currently trades at $40.22 and is a long way away from recent highs, suggesting if a rally does take place, there's plenty of upward growth potential already mapped out. Even after its poor performance in recent months, the Massachusetts-based company is still up 11.84% in the last 12 months, and both the PEG ratio (1.07) and the P/E Ratio (18.54) support

This article was written by

Oisin Breen profile picture
The interplay of systems has long been a fascination of mine, from the way in which all seemingly discreet entities are in fact involved in a continuing dialogue, to the real world impact of this reality. No event is without ramifications, and it is up to us whether we choose to understand this fact, analyse it, profit from it, or be overwhelmed by it. The latter, of course, is not an option, profit however is. I began my working career in the field of management in the marketing sector, running sales teams, setting targets, and training, and, while it surprised me at the time, what really pulled me in was analysis. Even with a team of completely different personalities, from the first moment they meet, there is a constant dynamic process of interaction, out of which the whole, the team, emerges, and understanding what this dynamic is, and finding the moments in which it exists, is what led me to continuously advance. Since then I have worked a series of jobs, I have been a teacher, I undertook an MA in Literature, I have been a writer, and a fundraising manager in the North of Britain. I have also undertaken consultancy work in the same sector with regard to staff training, development, and compliance. Now, while doing an MSc in which my dissertation topic will be the relationship between narrative and system's theory, I remain a teacher, a writer, and have a keen interest in the global economy, its systems, and its narrative. My research interests include systems theory, emergence, philosophical linguistics, narratology, and dynamic growth. Additionally, I have long had a significant interest in the broader macroeconomic developments of the financial world, and am especially interested in identifying overall trends, and their underlying causes. Indeed, I've heard it said that every trade tells a story, and as a literary researcher involved in the interaction of dynamic systems, my analysis is focused on broad trends and their relationship to the day's events.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (2)

Your "just saying" was absolutely correct. This stock is way overpriced at 35 dollars never mind 40 or 50.
Be careful on valuation.

The company's non-GAAP "adjusted" earnings strip out a lot of RECURRING operating expenses. The most notable of which is stock based compensation.... Additionally, the exclusion of integration costs provides an easy bucket for management to place questionable cash expenses.

There is a lot to dislike about the metrics the company has chosen to present as Macom's "underlying" financial performance... Also noteworthy, the company's "adjusted" figures are used to assess management performance for bonuses. This provides a powerful incentive for manipulation.

Just Saying...
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