Sigmatron's revenues and earnings disappoint.
Sigmatron reported Q earnings of 25 cents versus 26 cents a year ago. The revenues were $21.9M versus 20.1M a year ago, a rise of only 8.9%!! The seasonality became apparent since the revenues dropped sequentially from last Q's revenues of $48.2M, the number that set off the ballastic rise in the price of these shares. Today the remaining mo guys ran for cover as the stock dropped another $2 to 15 and change.
The Motley Fool write-up last week predicted the probablility of an earnings disappointment, based on the sharp stock price decline.
SigmaTron is currently slated to earn $0.30 per share this quarter and $1.22 per share this year. Although the earnings increases in the second half are going to be weak, the company should still grow earnings for the entire year by 41%, and looks capable of growing earnings next year by 20%. With a price/sales ratio of 0.55, a trailing P/E of 15.5, and a P/E on forward earnings of 14.5, if this
price drop did not forecast some kind of disappointment, SigmaTron is the cheapest printed circuit board manufacturer in the group. With names like HADCO (Nasdaq: HDCO), SANMINA (Nasdaq: SANM), MERIX (Nasdaq: MERX) and ALTRON (Nasdaq: ALRN) all in acquisition mode, it is not inconceivable that SigmaTron could attain a higher valuation if it does not blow this quarter's earnings.
In the end, it seems to come down to a question of who to believe, the company or the stock.
The Motley Fool didn't do their homework on this stock. First they compared it to the board manufacturers instead of the board and box assembly group. Sigmatron is essentially an assembler. Then they picked some of the priciest issues in the board group to compare against. Finally they made their usual Fool mistake by not discounting forward estimated earnings for seasonality, cyclical, and risk factors (strong dependence on one risky seasonal customer).
Again companies like DII Group, Continental Circuits, Circuit Systems, ACT Manufacturing, Smartflex have just as good growth prospects and trade cheaper on financial ratios, and pose significantly lower risks. Flextronics will grow faster and I think has comparable, although lower risks. BTW Sigmatron has one of the weakest balance sheets in the group (the highest debt/equity ratio). In order to expand their capacity as they are talking about will take money. They may have to do a secondary offering of stock to raise the money. All the bad news may not be out yet on this stock.
Finally, you kept saying that if the company knew bad news was coming, they would have alerted shareholders with a press release. Well the company knew the poor revenue/ earning report was coming. But they let it leak out to the big boys, and then denied knowing the cause of the stock price drop. They should have issued a press release as soon as they recognized that their revenues and earnings were going to come in far short of projections.
Paul |
