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Will Robert Karr Be Lit in the Coming Years? I Bet It Will Be with LED Light
Posted by: Victor Selva (IP Logged)
Date: November 25, 2013 05:14PM
The tech industry is the second largest exporting industry in the U.S. But in recent times, low-cost substitutes have shifted production to others countries like China or Taiwan. The industry is capital intensive and requires investments to advance in technology and reduce manufacturing costs. Also, it is a concentrated industry, with the top 50 companies holding more than 70% of total market share.
Having said that, let's take a look at Karr´s last trade and try to explain to investors the reasons of this investment opportunity.
On Nov. 21, Robert Karr bought Veeco Instruments Inc. (VECO), a company that designs, manufactures and markets equipment to make light emitting diodes (LEDs), solar panels, hard-disk drives and other devices.
The company operates through the LED & Solar segment (70% of 2012 revenues) which designs and manufactures metal organic chemical vapor deposition (MOCVD) and molecular beam epitaxy (MBE) systems and components sold to manufacturers of LEDs, wireless components, power semiconductors and concentrator photovoltaics, as well as to R&D applications. The other segment is Data Storage (30% of 2012 revenues) which designs and manufactures systems used to create thin film magnetic heads (TFMHs) that read and write data on hard disk drives.
A Growth Driver
The main growth driver in the next years will be the general lighting market. Thousands of additional MOCVD tools will be required over the next few years as LEDs become widely adopted for much larger market application, offsetting the possible decline in the consumer electronics niche (television, notebooks). Also, the firm focuses on cost reduction in the LED technology through larger wafers, automation and dedicated equipment.
60% Market Share
The growth in the data storage business was pretty good, and the firm now is the leading supplier of manufacturing equipment. Two risks to consider are the brutally competition it faces and secondly, as this business is tied to worldwide storage demand growth, a decrease in the future could impact the segment´s profitability.
In terms of valuation, its price-to-book ratio of 1.46 indicates a discount versus the industry average of 1.6 and the price-to-sales ratio of 3.4 is above the industry average of 1.42. VECO's debt-to-equity ratio is really very low and is below that of the industry average, implying that there has been very successful management of debt levels.
Finally, I always like to see one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. It stood at 3.8% and is higher than 54% of the companies in the industry. We can appreciate the evolution in the next chart. It is very important to understand this metric before investing in a high-growing company.
For a long-term perspective, I would advise fundamental investors to consider adding Veeco to their portfolios as it has a solid financial position with extraordinary good debt levels and a good stock price appreciation during the past year makes me feel confident for more upside potential.
Hedge fund guru Jim Simons has invested in it as well. Should you too?
Disclosure: Victor Selva holds no position in any stocks mentioned.
Guru Discussed: Jim Simons: Current Portfolio, Stock Picks
Stocks Discussed: VECO,
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