Sigma now has a 620 million market cap with almost half of that cap in cold, hard cash right now. Figure less cash market valuation of 350 million.
Use $2.50 earnings next year and todays price of $20. You subtract the cash per share of almost half and market valuation per share is $11. This brings SIGM PE down to 4.4.
$11/$2.50 = 4.4 PE
Conf call management stated next quarter has a sequential decline due to one customer and one time event. If you believe management (and I do) things continue on with rapid growth in blu-ray and iptv chips through 2008 and 2009.
Add to this the 2 million share buyback and only standard stock option dilutation again according to management on their call.
Add it all up and you get a Warren Buffett like gem. So why isn't warren buying today? He can't. 600 million market cap is too small. Even if it tripled it would not effect his balance sheet much plus he have to buy the entire company and doing so would require a premium. He prefers to get in when the valuation gives you about zero risk. This is what we have here. Short term players, shorts, Mr. Market, etc. All giving us long term investors a wonderful opportunity for entry and a multi-bagger over the next couple years.
If you can see beyond a day, week, month or quarter then SIGM the company has as bright a future as ever. The stock will follow over time.
Sorry. Barriers to entry mean not EVERYONE can do what sigma does. Some can of course but if you actually listened to the conference call or read the transcript you would realize the following:
1) Market selling off because of a roughly 2% miss on analysts numbers. At a 4.4PE valuation this is not material. This ain't a momentum high PE stock.
2) The guidance is the big issue with the DAY TRADERS or momentum traders. BUT, the guidance noted that one customer is reponsible for the next quarter sequential decline with a resumption to regular growth in the next 3 following quarters. So if you want to trade a company on one rough quarter here or there go nuts. That is how you get opportunity to get in low
3) Buffet's companies over the 40 plus years have had bad quarters and bad years. However Buffett does not worry about these things. ALL businesses have blips. Even google blipped. Every company will. You buy for the years and not the days or weeks and you will prosper. Buffett is now the #1 wealthiest guy on the planet. He didn't get there by panicking or day trading which is a folly. I've never seen a single day trader on the Forbes richest list but I've seen 100's of investors (billionaires).
I'll stick with the fundamentals, valuation, rationality and let cooler heads prevail over time.
I am long 1300 SIGM now. 500 at 25 and change and another 800 at 21 and change. If it goes under 20 I'll double down again if Mr. Market gives us such a treat.
Nobody ever made a dime panicking. Today you see panic. I'm taking advantage of short term mentality just like Buffett always has. This one is a no brainer which is exactly what you look for in markets like this when everyone is predicting the end of the world. If the end of the world doesn't happen you make a lot of money. If things do end then it doesn't matter if it goes up or down since people will be trading with chickens. I think it will be the former.
Likes to buy (whole) companies at a discount. Likes companies with long term ownership already in place. Does not like Technology companies because he doesn't follow tech. Does not like companies where insiders do not own a lot of the shares
I'm certainly not saying that Warren Buffett would make a play for Sigma Designs, but it's important to get the facts straight. If he could lock up Tran for a long term (and why wouldn't Tran stay as part of the Berkshire umbrella) that would provide enormous financial backing for the company as well as a no-brainer buyback for all those hedge funds on naked shorts (an illegal activity.) With capital markets pretty much out of the picture (most Berkshire companies borrow from Berkshire) Sigma would have the room to expand their growth opportunities without bound.
With the massive trading activity going on today, WB could very well become a 25% owner in one day, and it's not even noon.