Glad to have you on board. I think you will be very happy with your investment.
Here are some estimates. SILI is almost certain to have at least 10% Q to Q sequential revenue growth from Q4 1999 to Q1 2000. This is based on: (1) the book-to-bill going into the Q of greater than 1.1; (2) industry reports of demand; (3) comments made by SILI is January; and (4) the VSH "at least" 20% announcement. (Personally, I think that there is a good chance of 15% - 20%, but am not willing to predict it).
Q4 1999 revenue was $110 million. A 10% increase takes revenue to $121 million. Net margin in Q4 1999 was 22.1%. I think it is reasonable to assume that this expands to 25%, which is a 10% margin expansion over last Q which I attribute to continuing better product mix, pricing power due to market conditions, and continuing cost efficiencies.
25% of $121 million = $30.25 million, which equals $1.01 per share. My current estimate for Q1 is $1.03, which gives more direct weight to VSH's comments.
Greater revenues allow for margin expansion. Over the last 4 Q's SILI has grown revenues and margins.
Q Rev+ Earn+ %
Q1 4.434 3.287 74%
Q2 9.766 3.466 35%
Q3 10.521 5.587 53%
Q4 8.804 5.587 63%
These numbers are in millions and represent the incremental earnings increase based on the listed revenue increase. The percentages reflect the percent of new revenue that flowed to the net bottom line.
If SILI revenue gains result in 50% incremental earnings gains, which is lower than 3 of the last 4 Q's and below the last 2 Q's, then an increase of $11 million in revenue would produce $5.5 million in additional earnings, which is .184 per share. This would bring us to $1.00 EPS for Q1 2000. Pretty close to the other estimate.
My $1.03 estimate is slightly above the foregoing, but was based on an extrapolation from VSH's announcement. Given that I think that my revenue numbers for SILI are conservative, I will stick by my $1.03 Q1 2000 estimate.
Just by way of example, here is what SILI could do with revenue growth beyond 10% over Q4 1999. This assumes that 50% of the increased revenue goes to the bottom line. Basically for each 1% increase in revenue growth, SILI produces 1.1 million in additional revenue. At 50% incremental earnings increase this amount to $550K or .0184 EPS. Thus,
11% = $1.018
12% = $1.037
13% = $1.055
14% = $1.074
15% = $1.092
16% = $1.110
17% = $1.129
18% = $1.148
19% = $1.166
20% = $1.184
I remain comfortable with my $1.03 estimate and think that in a month we will see headlines of year-over-year 50% revenue growth and 350% EPS growth from Q1 1999.
At $1.03 (annualized = $4.12), SILI is currently trading at 28x FY2000 EPS, which is dirt cheap compared to ANYTHING reasonable. If we simply maintain the existing EPS multiple of 52, SILI should trade at over $200 per share. If we make it to my $5.14 FY2000 estimate, at the current PE, SILI should trade on a TTM PE of 52 at $260+.
PE multiple expansion you ask? At annualized Q1 (4.12), SILI's price could move to:
PE Price
60 $247
70 $288
80 $330
90 $371
100 $412
At my estimate of $5.14, SILi price could move to:
PE Price
60 $308
70 $360
80 $411
90 $463
100 $514
Thus, IMO, SILI's potential over the next year ranges from a low of $200 to a high of $514. Another split of at least 2 for 1 and possibly 3 for 1 will be absolutely necessary before the end of Q2 2000.
Think that my $514 high end estimate is too optimistic? Pre-split when it was at $50-$80 a share, folks thought that $500 was outrageously unrealistic. However, that is just above what SILI hit a couple of weeks ago at $165 (x3 = $495) -- within five to six months of when it was at $50 to $80 a share.
If (and when IMO) SILI's revenue and earnings growth continues, the price will rise to reflect the realities of the fundamentals of the company. There will be bumps along the way, but all they will be, IMO, is short traffic jams while more of the highway gets built.
Troy |
