Novice Investing - Future Vision With OmniVision

Date: Tuesday 13th 2008f May 2008 05:13:09 PM

Future Vision With OmniVision - 02/19/2008

By: Hari Wibowo

We have eyed OmniVision Technologies, Inc. (OVTI) for several years now. We bought it, sold it at a profit and then it came tanking. Trading stock? I think so. OmniVision is fairly volatile. Up down up down it goes. It is now at the trough of the cycle at around $ 12.71 per share. Now, we are interested in buying, again. When we sold last September 2007, we saw no apparent reason for the rapid increase in OmniVision shares. We sold at $ 22 per share. Now, we are puzzled with the rapid decline just as we were puzzled with the rapid rise. At the time of our sale, analysts were expecting $ 1.46 per share of profit for fiscal year 2008. Now, expectation is for $ 1.67 per share profit. Very puzzling, indeed.

Date	Share Price	Expected EPS	Indicated Fair Value
25th Sep 2007	$ 22.00	$ 1.46	$ 27.02
19th Feb 2008	$ 12.40	$ 1.67	$ 29.96

While we do not solely rely on Yahoo's analysts estimate, our reasoning for buying the stock was still solid. OmniVision business is still in the image sensor device. In layman term, things like your camera phone and security camera will entails OmniVision's products. Since all other OmniVision's business does not change, this analysis merely serve as a remainder that it is an excellent time to buy OmniVision.

How so? Well, we can't say anything yet until we calculate OmniVision's fair value. Having a look at the latest balance sheet, OmniVision spots a positive net cash of $ 365 Million or $ 6.58 per share. With current long term bond in the 4% range, we feel that fair value of OmniVision (after taking into account its positive net cash) is a Price Earning ratio of 14. In General, fair value of OmniVision's stock price is as follow:

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 (25/07/2007) = 14 * 1.46 + $ 6.58 - $ 0 = $ 27.02 per share

Stock Price (19/02/2008) = 14 * 1.67 + $ 6.58 - $ 0 = $ 29.96 per share

That's how we get the 'indicated fair value' on the table above. Due to the rapid decline in OmniVision's stock price, current valuation is even more appealing than our September sale, with a potential price appreciation of more than 125 %. No, we are not hesitating. Despite the current volatility in the stock market and worsening economic condition, we are buying OmniVision for the second time for our sample portfolio.

END

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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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