Don't show againBUY ALERT: AuthenTec (Nasdaq: AUTH) BUY 1/4 Position 8/4/08 Around $7.50
The market didn’t take to kindly to PeakStocks.com portfolio recommendation AuthenTec’s (Nasdaq: AUTH) latest earnings release, sending shares precipitously lower in the days following what were largely stellar earnings from a rapidly expanding up-and-coming company.
The good news for us, is that this presents us an excellent opportunity to add shares of AuthenTec at discounted prices and further cost average our total position.
If you haven’t already, it’s time to put some money to work in shares of AuthenTec.
I don’t know when shares will stop their recent slide to new all-time lows, but one thing I am certain of: AuthenTec is a cutting edge company that continues to execute in an otherwise wickedly negative marketplace and in the face of continued consumer doldrums.
Very briefly, AuthenTec is the world’s leading provider of fingerprint sensors and solutions to the wireless, PC and Access Control markets.
I am initiating the Fifth (5) BUY recommendation of AuthenTec at or around $7.50 per share.
Here’s Why:
New to the AuthenTec story?
- Or read my update on AuthenTec’s latest stellar earnings here.
Time to Ride This Gravy Train
Continued Execution, With an All-Time Low Stock Price Make AuthenTec Shares Ripe for the Picking.
Not only can we get shares of AuthenTec far below their IPO price of $11.00 per share, but we also are getting one more year of operating results and profits to boot, whih has in turn made shares of AuthenTec much more reasonably priced as the company has further grown into its valuation.
The following are my reasons for recommending another purchase in AuthenTec right away:
- Stock Price: We’ll start with the obvious one. AuthenTec went public last year at $11.00 per share.
Since that time, they have met or beaten analyst’s earnings estimates every single quarter as a public company, become profitable for an entire year, and have now become cash flow positive in 2 out of the last 3 quarters, all the while increasing sales 50% year over year, AND expanding their gross and operating margins significantly.
At these levels, AuthenTec represents a bargain price for a company growing this fast, with increasing profits in this sort of economic downturn where most technology companies are facing severe headwinds.
- Valuation: You won’t get me to say that AuthenTec is dirt cheap, hopefully, it will never be, but with the recent decline, it has become what one would call a “fair” or reasonably valued company.
Remember that it is always better to buy an excellent company for a good price, then a good company for an excellent price.
High growth stocks like AuthenTec will never be “cheap” by any stretch of the imagination because they are growing so fast and deserve a premium, but within that bookmark, shares of AuthenTec are looking incredibly cheap, even for a fast growing company.
Some quick hits:
- Current P/E based on 2008 earnings of $.18 per share: 40.61
- Forward P/E based on 2009 earnings of $.42 per share: 17.41
- Projected 5-year EPS growth rate: 32.5%
- Current PEG based on 2008 earnings: 1.25
- Current PEG based on 2009 earnings: .54
- Using my Discounted Cash Flow model, I get a price range of: $8-10 per share
- AuthenTec’s margins, growth,etc. are all higher than most companies in their peer group and industry.
I won’t go into excruciating detail on every single valuation metric, but if you look at how fast AuthenTec is projected to grow this year (45.5%) and next year’s sales (34.3%), on top of their expected Earnings Per Share growth of 133% into 2009, it’s not hard to justify that a company like this deserves a much higher premium and they aren’t getting it.
I have always been willing to pay more for AuthenTec than you might otherwise for any other company because of its growth prospects and proven track record.
The nice part with today’s valuation is that now you don’t have to really pay any premium at all!
- Continued Company Execution: I wrote about this in much more depth in my last post concerning AuthenTec’s latest quarter.
Aside from a few blips in terms of their Average Selling Price (ASP) declining because of some one-time items and continued cost reductions, and a bump in their inventory in order to serve their rapidly expanding sales to new customers, there was little there that would alarm any investor, especially in light of the fact that AuthenTec has never missed earnings, and has often raised both top and bottom line numbers over the last year.
Everything that management has set out to do and accomplish, they have done, including launching 3 new fingerprint sensors, a new product packaging called TouchStone that enables AuthenTec’s sensors to be integrated into waterproof products and be more durable, and other enhancements including great margin expansion, and profits, all point to a business that is firing on all cylinders, even in spite of current economic forces.
You can read my complete company analysis from AuthenTec’s last earnings conference call here.
Bottom Line
Don’t be afraid of current market conditions!
While we can never predict bottoms, my cost-averaging approach to purchasing shares on PeakStocks.com has allowed us to get into AuthenTec at bargain prices while being patient for a turnaround in the overall market, and specifically, for a catalyst with this particular company.
I advise you to buy shares immediately, even if it is only your first position, and add to that position on anything below this level.
Remember, AuthenTec came public at $11 per share.
I never thought we would have the opportunity to purchase shares at or near these levels ever!
This might be one of the last times you’ll get that chance, don’t let it pass you by.
- Click here to read my complete AuthenTec research report and buy recommendation
- Or read my update on AuthenTec’s latest stellar earnings here.
|
*Variables You Should Know About AuthenTec (Nasdaq: AUTH) |
|
|---|---|
| Current Recommendation: |
STRONG BUY |
| The Company: | AuthenTec, Inc., is a fabless mixed-signal semiconductor company that provides fingerprint authentication sensors and solutions to the high-volume personal computer (PC), wireless device, and access control markets. |
| Why Buy Now: |
|
| Market Cap: |
$206.9 |
| Revenue (TTM): |
$58.60 |
| Cash/Debt: |
$67 / $0 |
| Current Price: | $7.50 |
| Risk Rating (?): | 7.5 (Moderate-High) |
| Position Size (?): | 1/4 (12-17-07), 1/4 (1-17-08), 1/4 (1-23-08), 1/4 (7-3-08), 1/4 (8-4-08) |
| Buy Around Price (?): | $13.50 (12-17-07), $13.25 (1-17-08), $12.00 (1-23-08), $10.00 (7-3-08), $7.50 (8-4-08) |
*As of 8-1-08. Except share price, all values in millions.
(3 votes, average: 5 out of 5)
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(9) comments to “BUY ALERT: AuthenTec (Nasdaq: AUTH) BUY 1/4 Position 8/4/08 Around $7.50”
Leave a Reply
PeakStocks.com welcomes and encourages reader comments. Add your voice to the discussion whether you agree with me or not.
August 3rd, 2008 at 4:05 pm
I think you owe it to yourself and to readers to do more research to figure out why the stock has dropped since earnings. Was there something on the conf call? Is it related to the lawsuit? A lockup period ending?
August 3rd, 2008 at 4:15 pm
Hey Joe,
Excellent points, and believe me when I say, I don’t make buy recommendations lightly.
I did a ton of research before and after the AuthenTec earnings report.
For instance, you can see what I was looking for from AuthenTec in this post here:
http://peakstocks.com/authentec-continued-execution-or-trouble-ahead
Then, once AuthenTec announced earnings and held their conference call, I took a couple of days to parse the data and do some more digging around.
With that I revealed that there were some potential problems on the call, at least from Wall Street’s short term thinking, and I outlined those both in my post, and in the comments after the post.
You can read all about that here:
http://peakstocks.com/authentec-q22008-earnings-highlights-record-sales-continued-execution
Finally, with all that being said, I will comment that there has been NO insider selling at all for over 2 months.
In addition, last week marked the end of the quarter, and it was quite possible that once AuthenTec fell below their previous all-time low below about $8.75 or so, there were some stop-limit orders that were hit to protect gains/losses from institutional investors (in fact volume was huge those 2-3 days), from a falling knife and close their books with more winners than losers for reporting periods.
I don’t know why the stock fell short term, your guess is as good as mine, but I do a ton of research and reporting to make sure that I am sound in my analysis and recommendations for the LONG TERM.
I don’t care about short term fluctuations, so that being said, I did do the research that you speak of to figure out why the stock declined.
Sometimes Joe, it declines for no good reason other than market panic, and the heard mentality, and presents us an excellent opportunity to buy more shares!
Chris
August 3rd, 2008 at 11:41 pm
Chris,
Your recommendations have made me some money. I made about $200 buying AIR around their earnings call. (mostly just luck) Also almost 34% returns on GeoEye since buying 200 shares at $16.55. I think I will stick with GeoEye at least until their launch date (I am more of a short-term trader than you).
AUTH I agree is a good company, but with the state of the market I am cautious about buying much of anything. Looking more at China stocks at this time… the Olympics will give a lot of people a view of how powerful this country has become.
I am considering buying AUTH when the US market has recovered a bit…
August 4th, 2008 at 9:50 am
Hey Matt,
Thanks for the feedback, just realize that all my picks are meant to be held generally for 2-5 years, not a few weeks or months.
As long as you understand that, then I am ok with the short term trading as long as you understand that usually anything short term, aside from catalysts like the launch of GeoEye-1, etc., is usually all luck and market timing.
It will usually take months and years for my investment thesis’ to play out, and that means holding through good times and bad, to ultimately get to the end of the tunnel and ultimate pay off.
Chris
August 30th, 2008 at 1:40 pm
Hi Chris,
I am a bit concerned over the high forward PE on Authentic I see listed on MSN of 64.60. What justifies your much lower PE, stated above?
OH…. and let’s all pray for a successful launch for GEOY!!!
Thanks so Much,
Bill
August 30th, 2008 at 2:12 pm
Hey Bill,
I think that the data that MSN is using is incorrect.
You see if you take analyst’s estimates for AUTH for 2008, they are projecting earnings in the range of $.18 per share.
With the stock trading at $8.12 as of Friday August 29th, 2008, that makes a forward PE of 45.11 ($8.12 divided by $.18 per share), and a forward PE of 18.88 for 2009 using $.43 per share in earnings.
As you can see, not only is AuthenTec’s PE ratio for this year within reason, but it is downright cheap for next year’s earnings, especially in light of the company’s huge continued growth into next year and beyond.
You should probably take a look at yahoo finance, as their data is probably a little cleaner, although it too has problems at times.
Here’s the data page for analyst’s estimates for AuthenTec:
http://finance.yahoo.com/q/ae?s=AUTH
Finally, within a few more days to a week, I will be posting my research reports which will detail this in full, and leave nothing to change in explaining things about AuthenTec.
You will be able to access those reports when they are available here:
http://peakstocks.com/research-reports
Thanks for your question.
Chris
August 30th, 2008 at 2:22 pm
Thank you Chris for your quick reply, information, and links! I will review the websites:-)
Bill
September 5th, 2008 at 7:26 pm
Hi Chris,
Curious what you think is causing Authentic’s swoon over the past month? Is it merely general market conditions, short-selling, new information on the company???
Thank you,
Bill
September 5th, 2008 at 8:09 pm
Hey Bill,
Thanks for taking the time to write in to me, I appreciate it.
As far as exact reasons why AuthenTec is falling, the simple answer is that I don’t know.
It really doesn’t matter either as far as we are concerned, so long as there is no fundamental change in our investing thesis.
It could be as simple as the whole semiconductor industry is reaching 5-year lows, or there are a couple of funds that are having trouble (like in the news lately), that had to liquidate their entire positions in the stock, thus hammering it, or some other reason, or a combination of all of the above.
The reason I haven’t talked about the decline is because there’s nothing to talk about. It’s par for the course in the bear market that we are in.
That’s why I always advocate cost-averaging into your position, and never buying all at once.
I am getting tempted to purchase some more as well, if it dips much lower. There’s nothing going on as far as I can tell, and recently insiders have stopped their preprogrammed selling of stock, which tells me something on a positive front.
Sometimes, good companies go down hard, that’s when we need to pounce.
I seriously urge you to read my full Investing Style page here:
http://peakstocks.com/investingstyle
In it I clarify that if you can’t take a loss of 50% in any one stock that I recommend, then you shouldn’t be in the stocks that are in the portfolio.
Please read this page carefully so that you understand the risks, and if investing in the stocks I recommend is right for you and your risk tolerance.
Otherwise, sit tight, there’s nothing wrong as far as I can tell with AuthenTec.
Chris