| | | CVX stock has gone nowhere for almost three years.
That's too long for me to wait. I held CVX for a couple of years, and gave up a few months ago.
SIMO is probably a good "value stock" selection below $60. Here's a quick summary........
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Valuation - who knows what it's worth, but it hit $85 in 2024 when H2 2024 was going to have a slowdown in sales growth (relative to H1 2024). Currently SIMO is $56 with $11 cash, no debt, and a fairly EASY runway to $4.50 in 2025 EPS (probably higher). So the PE ex-cash off of 2025 EPS forecast is 10x. That's about where SIMO bottoms in terms of valuation.
Fundamentals - SIMO will gain share in 2025 in PC SSDs (2/3rds of SIMO sales). They are for the first time gaining traction in high end notebooks, and expect to have 60% share or more (!!) when their new gen5 controller chip enters mass market in the high end. Previously SIMO has never sold into high end notebooks, so this is all sales growth for them.
SIMO has a new enterprise controller chip that will grow perhaps for years and years, also a new area for SIMO (usually they're in the high volume low end of the client device market). They've got two signed customers (a NAND maker and hyperscaler customer (Ali Babba??)) which enter production now, and they expect to sign two additional customers in the current quarter. These enterprise customers give chip design wins, ramp slowly, and then (if the product is successful) grow for years and years and years.
The high end notebook market and enterprise controller market have gross margins higher than SIMO's corporate average, so as these high end sales grow we should see either margin profile improvements (if SIMO just accepts the higher margin sales and runs the rest of the business normally), or sales growth improvements as SIMO offsets the higher margin new products with price reductions (and resulting volume growth) in legacy products. Hopefully the margin profile of the entire company just heads higher.
So in 2025 SIMO should again show market share gains in flash controllers, improvements in the operating model, and (perhaps) again catch the "AI Buzz" as the enterprise controller chips and high end notebook PC controller chips are both sort of targetted at AI applications. If SIMO hit $85 with slowing growth on the horizon, in 2025 it should probably exceed $85 as 2024 was a "spend on R&D and develop new chips" year, and going forward it's more like "flatten spending, and enjoy the sales growth of the new chips".
The positive on SIMO is that the legacy products (low end high volume PC and cell phone controller chips) don't go away. Cell phones and PCs don't grow units much, but they also don't shrink units. So while SIMO's new products (high end notebook chips, enterprise controller chips, auto chips) give revenue growth, the legacy products don't decline much. There's minimal risk of share loss in the low end as far as I know, so the legacy stuff provides the cash cow for investing in these new chips.
Also SIMO has two big potential cash generation events in the next 12 months. First there is an ongoing Singapore Arbitration case against MXL for breaking an agree merger deal, and that settlment should give SIMO anywhere between $200m and $1 billion cash depending on how the Sing Arb court calculates "damages" from the deal break, and also SIMO has been for 2-3 years building a new office building at a cost of about $125m. When it completes, SIMO plans to sell the occupied building to an investment firm, and lease it back from them. That sales and lease back should produce at least the cost of the land and building (about $125m). When both of these events complete, it's easy to see SIMO having as much as $750m cash (~$23/share) on it's balance sheet and no debt. They'll either buy back stock, increase the dividend, sell the company to a debt laden big semi stock (that needs the cash), or, actually, I don't know what they'll do, but it's a nice problem to have.
Near term - Q1 2025 sales may be flattish or slightly down compared to Q4 2024 sales, but there is a new PC processor launch scheduled for April 2025 which should benefit SIMO's sales strongly from then on. So......sales growth will resume fairly soon (less than six months) and when that happens I think SIMO is $75 pretty quickly. After that, it depends on how long the positive newsflow continues until something gets in the way (something always does).
But I think buying SIMO below $60 is a no brainer for a 12 month hold. $75 is an easy price target, and if SIMO maintains just a bit of "AI buzz" $90 is not out of the question. |
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