PXLW Now my star #2 for 2010

PXLW is this Pixelworks or Fireworks???

(This analysis has not been either reviewed or cautioned by PXLW.)

What a great ride recently for this small cap company. In just a matter of days it went from 2,90$ to 4,65$ today before closing at 4,27$

What is happening there?

PXLW is a semiconductor company involved in the new technologies dedicating their products to high end displays, large scale projectors and LCD screens to name a few.

One of their biggest advantage (the opposite could also be true) is the fact that their stock float is relatively small with only about 13M shares on the market and already 29% owned by institutions.

By looking at their corporate site, you will see the numerous core technologies the own and it looks like totally on the edge of the technology. They have developed many software applications and seem to have many complete solutions.

So where is all that fuzz coming from? They are not new as they have been in business since 1997. They also had the privilege to get through the year 2000 bubble and in September 2000 they hit a whopping 143$ per share. So, it is not that also…

But, after many very bad quarters, they hit the bottom in march 2009 at a price of 0,37$. I guess at that time, everybody counted them out, dead without any ways to crawl back in…

That was a huge mistake.

They got back to 4,04$ on October 16th and were unable to get over that resistance due to a worldwide kind of recession and lack of orders.

But again, their management did what a company should do: get new products, get them better and increase your revenues.

And this is exactly what happened. When you look at their last quarter report, you will find that a major part of their total sales are coming from their newly developed products. By itself these new products results could mean a lot more orders to come in especially now that most of the talk in town is no longer ‘We are in recession’ but ‘We are going out of it’.

Now imagine for a moment that this company get back on track and start selling on the upper management guidance. As a matter of fact in Q4 this is exactly what they achieved.

Their gross margined increased substantially to almost 47% (versus 43% in Q3) and even if they posted a loss of 0, 07 per share, they end up the year with 31M$ in cash.

31M$ in cash???

That means almost 2,40$ IN CASH per share.

Hold on a second: It means that up until last week their share value was at par with their cash on hand. That does not make sense. Something must be wrong…Let’s get deeper!

Q4 2009 was a positive cash flow of 2,9M$ on sales of 19M$. Their total liability have been reduced from 86M$ to 43$ (50% reduction) Does that means that they can make close to 15% in cash appreciation every quarter??? Can’t be right!

Their management guidance at the high end of the scale is close to 0, 50 cents in profit with sales close to the 19M$ again.

On Q3 they also achieved the upper scale of the management guidance and they were also reporting a total debt of 15M$. Is that really all the debt load they have? Can’t be right!

Q2 they achieved the middle of management guidance and re-purchase of 60M$ in debentures leaving only 15M$ in debt…

So let’s recapitulate here:

Their shareholder equity is 13M$ (close to 1$ per share) and their net cash on hand is about 31M$. That number itself is impressive and tells me that have enough cash for their research and development and pay all debts as they presents.

A tech company in the semiconductors business will trade normally at a factor a lot higher than PXLW. For example Zoran (ZRAN) is actually trading near 1.64 price to sales ratio, AMD is trading at 0,99 times their sales, SIMG Silicon Image is trading at 1,22 price to sales ratio etc…

On earning per shares they beat AMD Advanced Micro Devices), BRCM (Broadcom) , ZRAN (Zoran) , NVDA (Nvidia Corp), SIMG (Silicon Image) RMBS (Rambus) and many more

So where is the problem?

They have the products, they have the management and since November 2006 when they restructure their business, they have delivered great results and achieved what they had planned most of the times.

Naturally whenever you restructure, you attack the credibility of the company and sometimes years can go by staying under the radars and this is the exact goal of this blog: find out the real next winner.

When you look at their results, their cash on hand, the lack of debts (this is good..) there are no reasons why that company could not attract more shareholders and I presume this is exactly what is happening: they are getting noticed.

When you compared to others in the same market and same category I have no doubt that PXLW should be at least in the same arena that their competitors and recognized as such. When keeping that in mind, I value the potential of PXLW as the following:

Cash on hand increasing by 2M$ per quarter in 2010 (share value of 3$)

Sales hitting 75M$ in 2010 (2.39 share to sales ration average equals a share value of 13,79$)

Profit per share of 1,20$ in 2010 (21 is the average for profit per share ratio) equals share value of 25.20$

So let’s be really pessimistic and cut all of those averages (after it is a small cap…) we have here a company basically evaluated only on its cash value. THAT IS A NONSENSE

In the coming months in a market going straight upward, I would not be surprised to see PXLW in the 10-15$ before we have our year end party. This led me to believe that they could return up to a 300% return based on Feb 22nd 2010 closing price and almost 500% since my recommendation on January.

They are now my STAR #2 for 2010

Enjoy your trading and never forget not to invest more money than you could lose. Always do your homework before investing in any company stock. This does not represent any investment advice. Also please note that a do have shares of that company as I have shares of all companies related to this site.