Cypress Semiconductor’s CFO Bought Shares

We can compare Cypress to a set of peers including Vishay Intertechnology (NYSE:VSH), Cavium Inc (NASDAQ:CAVM), Integrated Device Technology, Inc. (NASDAQ:IDTI), and Xilinx, Inc. (NASDAQ:XLNX). Vishay is the only one of these companies which does not feature earnings multiples in the 20s, as generally the current fiscal year or the one ending in early 2014 is not expected to be good for these other semiconductor companies. We’d note that this places Cypress in the same category as Cavium, IDT, and Xilinx; struggles over the next year before the sell-side predicts a turnaround. Of course, analysts may be being overoptimistic about these companies’ prospects over a year out.

Vishay, which we’d mentioned as being abnormally cheap in terms of earnings multiples, reported double-digit percentage declines in revenue and net income in its most recent quarterly report versus a year earlier. 12% of the outstanding shares are held short, reflecting bearish sentiment in the market even at the current price. The other three peers we’ve discussed generally have more modest revenue declines, though performance on the bottom line has been generally poor.

Buss has a good track record as an insider (at least in terms of his 2011 sales) and he seems to believe that the market has overreacted to Cypress’s poor results in the past several quarters. Still the company’s earnings are showing a steep drop and the valuation compared to trailing earnings is not particularly attractive. We are skeptical that the stock is actually a good buy and we think that investors should avoid imitating this purchase.

Disclosure: I own no shares in any stocks mentioned in this article.