Novice Investing - Omnivision, Dirt Cheap or Simply Dirty?

Date: Thursday 20th 2008f November 2008 05:45:49 AM

Omnivision, Dirt Cheap or Simply Dirty? - 10/14/2005

By: Novice Investing Staff

Let's look at Omnivision Technologies Inc. (OVTI). It designs and sells image sensor devices. Quite simply, OVTI made the camera normally found on your camera phone. For the year ending on January 2005, OVTI shipped 89 million of it.

Let's look at the financial statement more closely. Is OVTI profitable? Yes, it is. It earns $ 1.35 per share on the fiscal year ending on 30 April 2005. The stock recently traded at $ 12.25. Pretty decent valuation. Wait a minute. There is more. Looking through the balance sheet, OVTI spots a net cash of $ 5.48 per share! So, the real business of OVTI is actually valued at ($12.25- $ 5.48 ) = $ 6.77 per share. For $ 6.77 per share of OVTI, it earns $ 1.35 per share of profit last fiscal year. Is it cheap? For historical standard, heck yeah.

Is OVTI expected to make profits for the next 12 months? Yahoo! Finance said it is. Mean profit estimate for fiscal year ending in April 06 is $ 1.18. So, OVTI is definitely dirt cheap here. So, we can invest in OVTI now, right? Wait a second. Not so fast.

While we have laid out the positives, OVTI do have significant risks. First, the technology to build image sensor device is there. In other words, it is a commodity business. Furthermore, OVTI does not do a good job of establishing its brand. You must have heard of Motorola or Samsung phones but we seldom heard about Omnivision's brand mentioned on their camera phones. When those other semiconductor companies decide to make image sensor device to compete with OVTI, watch out below.

OVTI is definitely worth watching for. On a valuation basis, it is cheap. However, there are lots of uncertainties regarding OVTI earning power. We suggest that investors use a fairly high return for fair value of OVTI common stock. Perhaps, OVTI should trade at a yield that is 5-6% above 10 year bond. At current yield of 4.48 %, OVTI should be yielding at least 10.5 % for its fair value.

END

For preliminary research, you can browse our collection of annual reports here

You can also view other helpful commentary by clicking here

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.

[Resources] [Forum] [Link Partner ] [Novice Investing Directory ] [ Submit Your Article Here ]