Jeff Smith‘s Starboard Value has initiated a stake in Integrated Silicon Solution, Inc. (NASDAQ:ISSI) and formed a stockholder group with several other shareholders. As a new filing with the Securities and Exchange Commission showed, Starboard owns 2.20 million shares of Integrated Silicon Solution, the activist stake representing 7.2% of the company’s common stock. Moreover, the stockholder group, which also includes Oliver Press Investors, expressed their intention to nominate a candidate to be elected to Integrated Silicon Solution’s board at the next meeting of shareholders.
On the back of the news, the stock of Integrated Silicon Solution, Inc. (NASDAQ:ISSI) jumped by more than 4%. Usually passive investors perceive an activist move as a sign to buy, and when an activist investor like Jeff Smith initiates a position in a company, there is a big chance that piggybacking this investment will turn profitable. This can be supported by looking at Starboard’s track record. For example, following a long proxy fight, at the beginning of October, Starboard managed to replace the entire board of directors of Darden Restaurants, Inc. (NYSE:DRI) with its own slate of candidates, after which the stock has been gaining ground and currently is up by more than 17% since the board was replaced. The fund also currently is trying to acquire RealD (NYSE:RLD) for $12.00 per share, considering that if the company goes private, it will benefit the current shareholders. When Starboard reiterated its plan to purchase the company, the stock also spiked, jumping by 24%.
In another move, the activist investor raised its position in LSB Industries, Inc. (NYSE:LXU), as the company agreed to review some of the strategic proposals made by Starboard earlier this year. In addition, a couple of months ago, Jeff Smith sent a letter to Yahoo! Inc. (NASDAQ:YHOO) CEO Marissa Mayer, suggesting that Yahoo should consider a merger with AOL, Inc. (NYSE:AOL) and a spin-off of its equity stakes in Yahoo Japan and Alibaba Group Holding Ltd (NYSE:BABA). The fund added Yahoo to its equity portfolio during the third quarter and as of the end of September it owns 7.72 million shares of the company.
However, let’s get back to Starboard’s latest investment. The stock of Integrated Silicon Solution, Inc. (NASDAQ:ISSI) appreciated by around 25% since the beginning of the year, slightly outperforming the semiconductors industry, which gained 20% year-to-date. The stock trails a P/E ratio of 18.00, below the industry average of 22.70. Moreover, its revenue for the third quarter amounted to $85 million, an increase from $78 million a year ago, but its earnings per share declined to $0.19, from $0.25.
Aside from Starboard, another investor with a significant position in Integrated Silicon Solution, Inc. (NASDAQ:ISSI) is Chuck Royce’s Royce & Associates, which owns 2.50 million shares, as of the end of September, although the investor edged down its position by 4% over the quarter.
So, with Starboard going activist on Integrated Silicon Solution, Inc. (NASDAQ:ISSI), should you follow the move? The stock is a small cap and is priced relatively cheap. Moreover, since it is a semiconductor company, it might benefit from further gains together with the overall industry, which has some of the highest returns. So far, Integrated Silicon Solution, Inc. (NASDAQ:ISSI)’s stock has a consensus ‘Buy’ rating, but its average target price stands at around $15.90, which is close to its current price. Nevertheless, if Starboard takes some further steps, it can add more value to the stock, and the track record shows that there is a high probability for such a course of events.