Why The Recent Selloff In Silicon Motion May Have Been Overdone

ADRs of Silicon Motion Technology Corp. (ADR) SIMO rose after Ronnie Moas of Standpoint Research upgraded the stock to Buy from Hold, saying the recent pullback was overdone.

Justification For Upgrade

ADRs of Silicon Motion have dropped by 25 percent in the last six months and are currently trading at just 10x estimates for next year. Moas pointed out that both EPS and revenue are supposed to jump by about 10 percent to $4.10 and $630 million, respectively.

“In my opinion this selling is overdone and the name can be reinstated. Short interest is low … the market cap is $1.5 billion … there is $280 million in cash up from $180 mln a year ago … versus just 25 million dollars in debt,” Moas wrote in a note.

Silicon Motion, which supplies NAND flash products to Intel Corporation INTC, SanDisk Corporation SNDK and Micron Technology, Inc. MU, is expected to see some tightness in the NAND flash market. But, the analyst believes the situation should reverse itself in the second half of the year.

“I would jump in front of that rebound at this time. My target for SIMO is $55,” Moas highlighted.

New Opportunities

Moas noted that that SSD controller business has been very strong for Silicon Motion, which is a leader in this market with 30 percent share and also sells to many of the leading module makers.

“There are new markets and opportunities opening up for SIMO and I am quite optimistic regarding the prospects for this company looking out 18-36 months. I expect SIMO to get back to where it was ($55) six months ago in the next 12-18 months -- leaving an upside of 33% from the current quote,” Moas added.

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