You're letting yourself get too influenced by Mr. Market. Ignore the market and focus on the business. SIMO is by far the better risk/reward at the available price. The risk of not executing is quite low, and crucially, even if they don't execute, that's already pretty much priced in. If they do grow by 50% over the next two years, which in my opinion (and, I believe, yours as well) is as close to a sure thing as possible, then yes the stock will respond. Not necessarily by giving it the multiple it deserves, but by advancing about 50%. This is indeed what has happened with SIMO in the past when it has been at similar P/Es to the present.
You are looking at the past and saying that since the multiple has compressed so much, therefore the risk is higher. That is the opposite of the truth. The lower the multiple, assuming the business prospects are the same or better (as is true in our case), the lower the risk.
When do you seek to buy suits? When the store advertises that all prices have recently doubled? Or when they advertise that prices have been slashed in half? Stock prices are prices that the market is offering you on businesses, and they should be looked at the same way.
I don't know if you ever read The Intelligent Investor, by Benjamin Graham. But if you haven't, I would highly recommend reading it for the proper perspective on how to approach investing and how to react to Mr. Market. |
