Royce & Associates Owns Over 10% of Molex

The company’s peers include diversified electronics companies Amphenol Corporation (NYSE:APH), TE Connectivity Ltd. (NYSE:TEL), Methode Electronics Inc. (NYSE:MEI), and AVX Corporation (NYSE:AVX). With the exception of AVX, these comparable companies reported earnings growth in their most recent quarter compared to the same period in the previous year (though TE Connectivity did report lower revenues). TE Connectivity and Methode also have the advantage of trading at a discount to Molex in terms of their trailing earnings, with P/Es of 12 and 15 respectively on that basis.

Amphenol is priced about even with Molex, carrying a trailing P/E of 21, but it is a larger company and it experienced modest improvements on top and bottom lines in the third quarter of 2012 compared to the same period in 2011. Its valuation looks a bit high to us, and if an investor agrees with that analysis it’s hard to see why they would buy a slightly cheaper stock that is attached to a poorer performing business. Methode might be a good value, but it has a fairly low market cap at about $380 million and that may be unattractive despite what are some quite low multiples and a decent revenue growth rate.

We don’t like Royce’s decision to buy more Molex stock. The company doesn’t seem to be executing well, particularly considering that the stock trades at a multiple that should generally correspond with sustainable growth. Industry peers don’t look like screaming buys either but their values are in some cases comparable or lower and in these cases there is at least some sales growth.