1 Low-Priced, Fast-Growth Tech Stock: Benchmark Electronics, Inc. (BHE), Flextronics International Ltd. (FLEX), Jabil Circuit, Inc. (JBL)

Is It Undervalued?

Using the relatively conservative assumption that Benchmark’s growth rate will slow down to the high single digits, the company’s price-to-book ratio should still be between 1.1 and 1.2.

As worst, this would imply that the company is undervalued by around 20%, and create a “natural” price target of $22 per share. Coincidentally, Benchmark’s five-year high is near $22 per share.

Conservative investors who believe that Benchmark is undervalued might wish to initiate a long position in order to ride the stock’s upward momentum. Although it might not represent an attractive buyout target at these levels, there is always the added possibility that a trend reversal could prompt renewed interest from larger players in the space and rescue long investors from an unfavorable position. However, it should be stressed that there are no indications that such a deal is on the horizon.

More aggressive investors who wish to make a statement about the circuits industry at large might wish to pair their long position in Benchmark with a short position in a weaker competitor like Flextronics International Ltd. (NASDAQ:FLEX). While short positions can be risky, a paired trade like this carries tremendous upside potential as well. Given the moderately unfavorable trends buffeting the industry in which these companies operate, Benchmark’s relative strength might be an exception to the rule. Accordingly, a short play would not be out of line here.

In sum, Benchmark Electronics seems clearly undervalued on the basis of its solid quarterly earnings numbers and anemic price-to-book ratio. Investors who wish to profit from a potential correction to this imbalance may wish to open a long position in Benchmark Electronics, Inc. (NYSE:BHE). Those who wish to assume more risk and potentially magnify their returns could pair such a long position with a short trade in one of the company’s weaker competitors. Overall, the future looks bright for Benchmark’s traders and investors.

The article 1 Low-Priced, Fast-Growth Tech Stock originally appeared on Fool.com and is written by Mike Thiessen.

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