Elroy,
You are looking at this fundamentally wrong. You wrote:
"With a small cap high risk pick like SIMO we should be rewarded for holding the shares and taking on the much higher risk associated with SIMO compared to say ADI or TXN. But, we are not. The company is going fantastic, and relative to the fundamental performance all that is happening with the stock is multiple compression."
That is exactly the wrong way to look at this. SIMO is very much NOT a high risk stock, precisely because of the low multiple, the great business fundamentals, and the decreasing competition and greater business prospects for them going forward.
What that means, is that SIMO is pretty much as close as a sure thing to give 50%+ stock price appreciation over the medium term (say, two years), with VERY LOW RISK of losing money. That is because they will grow their profits by that much over the next two years (a very good chance they will grow their EPS 50% this year alone), and there is a limit to multiple compression. SIMO has for a long time had an undeservedly low P/E multiple, but even you have to admit the P/E is not going to go to 3 or something. Just not going to happen.
So yeah, multiple expansion to a regular stock market multiple (or to their deserved multiple, which would be higher than the average multiple, considering their growth) would be nice. But we don't need that to make consistent money with SIMO. All we need is patience. Not patience for the multiple to revert (which may never happen, for all I know, although I would expect it to eventually), but simply patience for the money and earnings to roll in.
The whole post you wrote is thinking like a trader, when you should be thinking like an investor. SIMO is by far the best risk/reward situation I have ever seen. Simply because the risk is so ridiculously minimal because of the compressed multiple.
I have a higher percentage of my investments in SIMO than I have ever been comfortable putting into one investment, and that is myself speaking as an ultra-concentrated investor. |
