After having monitored Neomagic Corp. (NMGC) for nearly a month, I started buying today. For those who follow my stock picks, let me explain why.
Although I don't follow the CANSLIM investing strategy religiously, I do like its core principles. Using that method, NMGC is a good CANSLIM pick. It just started breaking out of its base on high volume yesterday and today on no news (always a good sign -- it means that a stock is more likely to enjoy sustainable price increases.) In fact, its next quarterly report isn't due until May 14th, so the current breakout is not simply in anticipation of soon-to-be-released numbers but rather appears to be based on solid fundamental and technical factors.
NMGC is the leading supplier of integrated graphics chips for laptop computers. The three largest laptop manufacturers all use NMGC's chips, and NMGC's customer base keeps growing. Thus, it dominates its field with cutting-edge technology. It also was recently voted by its peers as the best managed fabless chip manufacturer, and reportedly is branching out to into other areas like chips for digital photography that will use its innovative technology.
For you IBD fans, NMGC has a respectable EPS rank of 74 and RS rank of 71 with a group RS rank of 67. The U/D is 1.6 and the Acc/Dist is B.
The company's growth in earnings and revenues are amazing. Quarterly earnings and revenue growths have consistently been over 150%, and in some cases over 1000%, during the last two years. For example, in the last quarterly report it had profits of 0.24 per share on revenues of 44.7 million, up from profits of 0.05 per share on revenues of 16.3 million during the prior year's quarter. And the beauty is that revenues and earnings growths have been not only dramatic but steady -- in fact, every quarter for the last two years has exceeded the prior quarter's numbers.
The company also has an amazing $2.58 cash on hand per share!
NMGC has a small float of 9.7 shares and mutual funds own only 24% at this time. Thus, there's a lot of upside potential as institutional buyers start discovering this company.
NMGC had been trading for around the last 10 weeks at a base that generally was in the high teens, and only recently has broken out above 20 on very strong volume. Today's close was around 21 1/2 on nearly twice normal volume.
The only risk I see is that one of the big boys (Intel, National Semiconductor, Motorola, etc.) may try to shove NMGC aside and take over its market niche. However, this seems unlikely due to the patents that NMGC holds. Although there was a lot of fear a month ago that Intel was going to compete head to head with NMGC, it didn't happen. Frankly, given NMGC's dominance in its market, its patents, and its large cash on hand, it would make more sense for a larger company to acquire NMGC than to compete. (I hasten to say, however, I have no knowledge of any takeover interest.)
Do your own research and check out NMGC -- it looks like a winner. |
