Novice Investing - Buying OmniVision

Date: Tuesday 13th 2008f May 2008 07:13:25 AM

Buying OmniVision - 12/29/2006

By: Novice Investing Staff

We have eyed OmniVision Technologies, Inc. (OVTI) for a while now. What is OmniVision Technologies? OmniVision is in the business of designing, developing and marketing of image sensor devices. We have covered OmniVision's annual report briefly. As we have deduced, OmniVision is making popular products that everyone is itching to be. As a result, competitors are springing up, most notably Micron Technology (MU) which has quickly grabbed market share in the camera phone business.

What makes us interested in buying OmniVision? Firstly, it has stellar balance sheet with $ 350 M of positive net cash. This is equivalent to $ 6.38 per share. That gives it enough cushion to survive in any downturn. Downturn? What downturn? OmniVision is expected to earn $ 1.08 per share for fiscal year 2007 ending on April. This is down from $ 1.31 per share it earned in the previous twelve months. But, at a price of $ 14 per share, OmniVision still represents excellent investment. Let us see. Assuming a $ 1.00 per share annual earning, what will OmniVision's fair value be? Fair P/E value for OmniVision is 15 ( a return of 6.66%), which is ok, considering that OmniVision is in a growing industry. With that in mind, fair value for OmniVision will be:
Stock Price = Real price - (cash+ short-term investment)+ long-term debt.
Stock Price = P/E * EPS + (cash+ short-term investment)- long-term debt.
Stock Price = $ 15 + $ 6.38 - $ 0
Stock Price = $ 21.38

Current price of $ 14 per share represents more than 50% appreciation for OmniVision. With the known risk but solid balance sheet, we are adding OmniVision to our sample portfolio section.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding OmniVision Technologies Inc. (OVTI) or any other securities.

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