Last month I posted here about a stock with the ticker EHLD and how it’s forward p/e was 2. Within a month it’s up 50% and still looks to be going strong.
I’m here to post the second round of this series.
Elite Semiconductor Micro Electronics: ticker 3006 on the Taiwan stock exchange.
Context:
\-September 15th close was 264 TWD
\-Market cap is 80 B TWD or 3 Billion USD
\-Did some research after seeing an AleaBito twitter post about this stock.
Essentially this company focuses on legacy memory which has been heavily squeezed at the moment. Micron, SK and all the big names have moved to HBM since their gross margins in that AI memory segment are 80% +.
This left a void in DDR2/3/4 etc and caused price increase and scarcity in the legacy memory segment.
Now Taiwan releases monthly reports sometimes for their stocks and ESMTs July and August month were pretty insane. Revenue was at 6.5 and 7.5 Billion TWD respectively and net margins are near 50. July EPS was $11. Annualising these earnings which are likely to keep increasing in the near term as qoq legacy memory spot prices keep increasing, puts the stock at a forward p/e of around 2. Even the companies own subsidiaries are buying its parent stock as it’s the best investment option they can find in the market.
There’s a few risks with buying this company at the moment though.
\- macro conditions; obviously there is a war going on which could push us into a bear market eventually
\- it’s heavily linked to the price movements of the big memory names and is an “AI stock” even though it has little to do with AI.
\- wafer prices are increasing, but pretty much completely offset by the increasing spot prices.
\- memory is advancing very quickly and legacy memory could become obselete in the next decade
All these risks can be considered priced in when you consider the forward p/e of 2. I also find it increasingly unlikely that the stock will stay this low after the next quarter earnings are reported.
Note: I’m half asleep and I can’t be bothered to neaten the grammar in this post. Please do your own research. I personally own a decent stake in this company.