Article by Investment U
Nowadays, many of us have internet-connected devices in almost every room. Sometimes more than one.
At any given moment mom, dad and the kids may be streaming movies through game consoles, shopping on Amazon (Nasdaq: AMZN) on their smart phones and reading the latest stock market moves on their tablets, all at the same time.
This stresses our current wireless network systems, and many aren’t producing fast enough speeds for our growing electronic demand.
But have no fear…
Starting next year, wireless networks will have a new standard called 802.11ad that will support a 60 GHz band. This will allow wireless networks to run a great deal faster than those that run on today’s 2.4 GHz and 5 GHz bands.
To draw comparisons, today’s 5 GHz Wi-Fi can work as fast as 600 megabits per second, while the new standard will support speeds up to 7 gigabits per second.
However, this new, faster band standard doesn’t mean jack if you don’t have products to support it.
“Peanut Butter and Jelly”
That’s where Marvell Technology (Nasdaq: MRVL) and its recent partnership with Israeli-based start-up Wilocity come into play.
Their partnership makes as much sense as peanut butter and jelly. Wilocity is the leading developer of 60 GHz multi-gigabit wireless chipsets. And Marvell produces market-leading Avastar devices; these are the physical routers we see in many homes and offices today.
Together they’ll create tri-brand solutions enabled with the new 802.11ad standard. And they’re among four other companies currently in the process of bringing these products to market.
These new Wi-Fi routers will create a platform where multiple devices can stream live content at the same time, with extremely faster speeds and fewer glitches.
Since it takes a year on average for Silicon Valley to get new products into motion, we’re looking for new Wi-Fi routers to hit the shelves around 2014. And when they do, expect Marvell’s bottom line to get a big boost.
But let’s take a look at things right now…
Priced to Sell
When you break down some of Marvell’s financials, there are a few statistics that scream “bargain.”
Marvell’s most recent quarterly earnings and revenue growth are nothing to smile about, considering both were negative. And the stock has taken a considerable fall of 36% this year since its high of $18.86 back on February 3. Today it’s trading in the $12 range.
But when you look at the fact that they have zero debt, trade at a P/E of 12.69 (well below the industry average of 33.11) and sport healthy profit margins of 16.62% (almost 5% higher than the industry average), the picture starts to brighten.
Marvell’s P/E is very attractive, but the ratio only values their underlying equity. It’s also nice to know the company has one of the industry’s lowest EV/EBITDA ratios.
EV/EBITDA stands for “Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization,” and it’s a measure merger analysts often use to value a firm since it also accounts for debt and cash holdings in a company’s valuation.
Marvell’s EV/EBITDA is an attractive 6.49 – almost half the industry average of 12.
And this is no surprise, considering Marvell has over $2 billion in cash sitting on its balance sheet and no debt.
Essentially a low EV/EBITDA means the company is at an attractive takeover price. Since Marvell is valued around $7 billion, we don’t expect the company to be taken over soon – there are only so many companies that could afford such an expenditure. However, a bargain is a bargain, and investors should take note.
Oh, and did we mention famed hedge fund manager David Einhorn is bullish on Marvell? According to its latest 13-F filing, Einhorn’s fund – Greenlight Capital – has 2.87% ownership of the company. And Marvell is one of the fund’s top five holdings, representing more than 5% of the fund as of March 31.
So with all the metrics covered, Marvell’s value ratios appear to be emphasizing that the company is currently sitting on the bargain rack. And with new cutting edge Wi-Fi routers in the works to hit shelves in 2014, future sales look bright, too.
Good Investing,
Ryan Fitzwater
Article by Investment U
