|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
Analog Devices: a Market Leader With Stagnant Growth
Posted by: Damian Illia (IP Logged)
Date: February 19, 2014 05:30PM
When it comes to wireless network equipment, analog converters and amplifier chips are the most needed products. As one of the world’s largest chipmakers, Analog Devices, Inc. (ADI)’s converter chips are sold amongst tens of thousands of customers, with over half of all sales coming from the industrial and automotive end markets. Sales in the automotive sector have been growing at a particularly healthy pace over the past few years, due largely to that industry’s product innovation. With traditional cars sporting sensors and in-dash displays, as well as hybrid and electric autos multiplying their chip contents, the company is bound to benefit from future sales.
In the article below, I will analyze Analog Devices' past profitability, debt, capital and operating efficiency, in addition to looking at which investors have recently bought the company’s shares this last quarter. Although the company has been dedicating many of its resources to grow in the power management chip segment, success has yet to arise. Furthermore, the semiconductor industry’s cyclical nature makes it difficult for any medium-scaled chip manufacturer to maintain long-term results, especially with competing rivals like Texas Instruments Incorporated (TXN)’s market shares.
ROA - Return On Assets = Net Income/Total Assets
Another favourable aspect of this company is its 50% share ownership of the data converter analog market. Since these chips convert analog voice signals to digital signals for processing, they are fundamental for all communications infrastructure equipment. The firm’s leading market position in this segment should guarantee solid growth levels in the long term future, as it established itself as the go-to company in the data converter market.
Over the past three years, Analog Devices’ gross margin has decreased from 66.4% in 2010 to 64.3% in 2012. This decreasing margin indicates that the company has been becoming slightly less efficient year-after-year.
A worthwhile investment
Despite some negative results in the company’s balance sheet, regarding EBITDA and revenue growth, I’m confident in Analog Devices future profitability for investors. Not only does the company sport high returns on capital and a dividend yield of 2.70%, but with the stock currently trading at 24.40x trailing earnings, it sports only a minimum price premium relative to the industry average of 23.50x. Also, while revenue may not currently be on the fast-track in terms of growth, this may change as the company continues to develop and diversify its chip production.
Disclosure: Victor Selva holds no position in any stocks mentioned
Stocks Discussed: ADI, TXN,
Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC. Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.