I think your expectations for P/E are skewed. The S&P 500 as a whole, has a P/E at the moment of about 29, and the S&P 500 is not particularly fast growing. Almost by definition, the S&P 500 grows at the rate of the economy as a whole. A P/E of 10 is for a dead and dying company, and SIMO is not close to that.
I highly disagree about the sector they're in being ex-growth. Not even close. Data centers represent a lot of growth, and a lot of data centers are using consumer-grade controllers. IoT represents plenty of growth for their eMMC segment, which before the inventory correction issue was growing very nicely, and presumably will return to nice growth again. Auto is not a particularly new industry for them, and they've been growing in auto and industry for a while.
I also don't see them as direct competitors to the NAND makers and neither do the NAND makers view them that way. The NAND makers need a high-volume manufacturer of controllers for mainstream applications and prefer to focus their own efforts on cutting edge. As it gets more and more expensive to develop controllers each generation, it is harder and harder for NAND makers to justify the expense which can only be amortized over their own NAND flash manufacturing (as opposed to SIMO who can develop the controllers and use them across the spectrum of available NAND flash). The overall trend has been to outsource more to merchant controller makers, not less, despite some movement in the other direction as well.
Enterprise is a new area for them, and I agree it's hardly guaranteed, but they've shown good success in moving up the value chain (USB keys to eMMC to SSD...) and I think they are heavily favored to break into and gain good share in the enterprise controller market. Even without that segment, I don't see them as particularly overvalued. At the temporarily depressed margin level they are experiencing now, they still have a P/E (ex-cash) of under 19. I don't see that as a very demanding valuation at all. |
