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Silicom Is Probably Going Back To $70

|Includes: Silicom Ltd (SILC)

This might sound ridiculous but if someone put a gun to my head and asked whether Silicom ($46) will touch $70 within 6 months, which requires a 50% bump, I'd say yes.

Nothing crazy has to happen to get there.

We learned this morning they're executing on a deal expected to ramp to $30m annualized. Sales were $100m last year. They typically earn 20% operating margins and their tax rate is 15% and they've got 7.3m shares outstanding.

The math implies $3.00 in EPS.

Yes the deal won't be fully ramped in 6 months, but a) if the ramp is going smoothly it'll be incorporated into estimates and priced, and b) the rest of their business is growing at a 10-15% clip too.

So expect folks to expect a $3.00 run-rate within 6 months.

From that to $70 requires a 23 P/E multiple. Why not? This a cyber security stock that's grown fast and profitably on horizons short, medium, and long. It's a small cap but not that small. And its got a bunch of cash and no debt. 23 isn't asking for much.

The last time Silicom grew fast on the back of a big deal was 2013. Sales grew 50% that year and EPS his $2.40. And the stock touched $70.

So this thing is off to the races I think.

Disclosure: I am/we are long SILC.