Spreadtrum Communications (SPRD)
Spreadtrum Communications (SPRD): Straddles the growth and value worldsBy Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 4/5/12 Sign up for free Cabot Wealth Advisory e-newsletter
My stock pick this week straddles the growth and value worlds. It's Spreadtrum Communications (SPRD), a Chinese designer of semiconductors that specializes in the chips that power 3G phones. The company has carved out a nice niche because its devices serve the unique 3G standard that's used on many Chinese networks, including the biggest one, which is run by China Mobile.
Spreadtrum's baseband chips enable email, the Internet and all the video, photos, texts, music, movies and other battery-intensive applications that make modern mobile handsets such power hogs. And they do it in a way that delivers high performance and excellent power management.
Spreadtrum's fundamentals are very sound, with a 230% jump in revenue in 2010 and 95% in 2011. After-tax profit margins have topped 20% for the last seven quarters, which is a tribute to the company's "fabless" strategy of designing, developing and marketing semiconductors, but not manufacturing them.
SPRD is liquid (average trading volume is over a million shares per day) and pays a dividend with a forward annual yield of 2.3% (10 cents per share, per quarter). Institutional sponsorship has reached 164, its highest level ever.
SPRD was a penny stock back in 2008, but it roared to 24 in early 2011, then plunged to as low as 9 in June 2011 when a short-seller raised questions about the company's inventory reporting and other practices. Fortunately, that cloud passed quickly, and SPRD, unlike many victims of short-seller accusations, made a new high at 30 in November. Since then, the stock has bumped downhill, slipping below 14 in early March, before bouncing a bit in recent weeks.
The most impressive statistic about SPRD for many is its attractive P/E ratio of just 6. That makes it the kind of bargain that value investors like to discover.
SPRD won't really be back on my radar until it can clear resistance at 17 and show a convincing breakout on good volume. That's the momentum component of the Cabot growth investing strategy.
But Spreadtrum looks like a sound, profitable company trading at a great price. It belongs on your watch list no matter what your style.
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|Spreadtrum Communications (SPRD)
Spreadtrum Center Building No 1
Lane 2288 Zuchongzhi Road
Shanghai, 201203 China
86 21 5080 2727
|Index Membership: N/A
Industry: Semiconductor - Broad Line
Full Time Employees: N/A