During the second quarter guru George Soros (Trades, Portfolio) more than tripled his stake in GigPeak (GIG, Financial)Â at an average price of $2.49 per share. The trade had a 0.09% impact on Soros' portfolio.
Soros now owns 1,923,366 shares of the company. Since the addition GigPeak’s market price has tumbled by an estimated -21%.
Headquartered in San Jose, California, with operations in Zurich, Auburn, California and Seoul, South Korea, GigPeak is a lead innovator of fabless semiconductors, a developer and supplier of analog, digital and mixed signal components to enable high-speed information streaming over the telecom networks, datacom infrastructure and consumer electronics links. The company also offers application-specific integrated circuits (ASIC). It was the first to introduce this technology in 1989, and it currently holds approximately 30 patents for it.
GigPeak has a market cap of $132.22 million, an enterprise value of $101.55 million, a price-earnings (P/E) ratio of 65.34 and a price-book (P/B) ratio of 1.01.
GigPeak has been expanding its operations according to its most recent 10-K filing. On Sept. 30, 2015, the company purchased Terasquare, a Seoul-based, fabless semiconductor company and provider of low-power, CMOS (complementary metal-oxide-semiconductor) high speed communication interface semiconductors for 100 Gbps Ethernet, Fibre Channel and enhanced data rate (EDR) Infiniband applications and mostly CDR (central data repository) devices, which the company has since renamed GigOptix-Terasquare-Korea.
According to the company’s most recent 10-K it has reported losses since its inception although it reported an income of $1.2 million for the year ending December 2015:
Historically, since inception in 2007 and through 2014, we have incurred net losses. For the year ended Dec. 31, 2015, for the first time, we recorded a net income of $1.2 million. For the year ended Dec. 31, 2014, we incurred a net loss of $5.8 million. For the years ended Dec. 31, 2015 and 2014, we had cash inflows from operations of $3.0 million and $2,000, respectively. As of Dec. 31, 2015 and 2014, we had an accumulated deficit of $101.0 million and $102.3 million, respectively.
Soros likely sees hidden value in GigPeak because the company has a broad portfolio of products, and it has been improving its financial situation since its inception while expanding its operations internationally. GigPeak’s revenues and profits could potentially explode in the future due to the increasing demand for bandwidth with a global population that continues to rise. As of Dec. 31, 2015, the company owns 46 patents and currently has three patent applications pending.
Although GigPeak is expanding its operations, it is a high variance, risky investment for the following reasons:
The company has reported that it has incurred substantial operating losses in the past and may not be able to achieve profitability in the future. If the company does not live up to its expectations it could possibly file for chapter 11 bankruptcy. According to GuruFocus, the company has an Altman Z-Score of 1.57 indicating that it is in the distress zone. The company also has a Beneish M-Score of -1.83 indicating that it manipulated its financial statements.
GigPeak also reported that it generates a significant portion of its revenue from a small number of customers, and the loss of one or more of these key customers could significantly reduce its revenues and profits in the future. Due to the fact that the company has less than a decade of operating experience, there is a high degree of variance associated with it losing a customer in the future that could drastically set the company back.
GigPeak is also trading above its intrinsic value according to the Peter Lynch chart below
Soros is a multibillionaire who founded Soros Fund Management, and the Open Society Foundations. His fund currently owns 154 stocks with an estimated total value of $3,229 million.
Cheers to your investment success.
Disclosure:Â Author does not own any shares of this company.
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