In Marvell’s recent conference call, management pointed out the aforementioned product transition — particularly in the growing mobile space. Marvell may not have been at the forefront of the mobile transition, but better late than never. The product switch is at its trough now, says management, and revenue should begin growing in the second quarter of this year. That alone is an argument against the the market’s current valuation of the company. Marvell is targeting 10% of WCDMA smartphone market share by the end of this fiscal year, and management seems confident that goal will be reached.
Along with mobile growth comes strong expected growth in the enterprise business, and the company has an impressive presence in the solid-state drive business — 50% of the merchant silicon market. Marvell has been and should continue to outperform on the storage business.
Cheap growers
So the company is continuously shifting away its reliance on PCs while gaining valuable market share in the storage and mobile businesses. In the mean time, the company has a 20% free cash flow margin. It has nearly $2 billion, or 37% of its market cap, in cash. Current assets handily cover total liabilities. The company has been and continues to aggressively reduce share count, which should boost EPS in coming years along with organic growth. David Einhorn seems bullish enough to put 6% of his entire fund in the company (a recently added-to position).
All of this while the market puts it at 7.8 times trailing EV/EBITDA, and lower if you model out a year or two. For comparison, chip maker STMicroelectronics N.V. (ADR) (NYSE:STM) trades at 12.57 EV/EBITDA. It lost money last year, yet pays an attractive 4.3% dividend.
Intel Corporation (NASDAQ:INTC) trades cheaper than Marvell using the same metric, yet it is a company that is 25 times the size of Marvell and much more dynamic its in its business. Marvell is a relatively easy-to-understand company that has a clear growth runway ahead of it.
As always, only invest in that which you are comfortable and knowledgeable. Technology’s obviously a very fast-changing industry and obsolescence is always right around the corner. Marvell looks to be handling that turn well, but investors need to keep a close eye on contract and design wins to determine if its new products are tracking with customers.
The article Marvell: One of Tech’s Most Unloved Growth Stocks originally appeared on Fool.com and is written by Michael B. Lewis.
Fool contributor Michael B. Lewis has no position in any stocks mentioned. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, Intel, and Microsoft.
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