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Is Silicon Motion Technology Corp. (ADR) (SIMO)’s Stock Destined for Greatness?

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Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Silicon Motion Technology Corp. (ADR) (NASDAQ:SIMO) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

What we’re looking for
The graphs you’re about to see tell Silicon Motion’s story, and we’ll be grading the quality of that story in several ways:

Growth: Are profits, margins, and free cash flow all increasing?
Valuation: Is share price growing in line with earnings per share?
Opportunities: Is return on equity increasing while debt to equity declines?
Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at Silicon Motion Technology Corp. (ADR) (NASDAQ:SIMO)’s key statistics:

SIMO Total Return Price data by YCharts.

Criteria 3-Year* Change Grade
Revenue growth > 30% 195.1% Pass
Improving profit margin 200.2% Pass
Free cash flow growth  > Net income growth 564.3% vs. 153.7% Pass
Improving EPS 233.4% Pass
Stock growth (+ 15%) < EPS growth 156.2% vs. 233.4% Pass

Sources: YCharts and Morningstar. *Period begins at end of Q1 2010. Free cash flow calculated from year-end 2010 to year-end 2012.

SIMO Return on Equity data by YCharts.

Criteria 3-Year* Change Grade
Improving return on equity 137.1% Pass
Declining debt to equity No debt Pass
Dividend growth > 25% Established in 2013 Pass
Free cash flow payout ratio < 50% Not available N/A

Source: YCharts. *Period begins at end of Q1 2010.

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