Marvell Technology Group Ltd. (NASDAQ:MRVL) produces semiconductor products for the storage, mobile, and networking industries. Shares of the company have done well lately along with most of the rest of the market, however shares are still well below where they were just a few years ago. In fact, the current share price is about half of its 2012 peak.
When a company like this trades inversely to the rest of the market, a few obvious questions come to mind. Most importantly, is this stock a bargain at the current price? A lot of the time, companies that have fallen out of favor due to a bad few years can produce some of the best long-term buying opportunities, so let’s see if that is the case here.
As mentioned, Marvell Technology Group Ltd. (NASDAQ:MRVL) produces its products in three different segments. First, the Storage segment is the largest and accounts for about 44% of the company’s revenues. This segment produces integrated circuit (IC) solutions for storage device manufacturers such as Seagate Technology PLC (NASDAQ:STX), Western Digital Corp. (NASDAQ:WDC), and many other household names. This segment competes with other major semiconductor manufacturers like STMicroelectronics N.V. (ADR) (NYSE:STM), which we’ll examine as a possible alternative to see how cheap Marvell Technology Group Ltd. (NASDAQ:MRVL) really is.
The Mobile and Wireless segment contributes 26% of the company’s revenue and mainly makes ICs for handsets and tablets for companies like China Mobile Ltd. (ADR) (NYSE:CHL) and Research In Motion Ltd (NASDAQ:BBRY) BlackBerry. The biggest threat to the mobile segment is QUALCOMM, Inc. (NASDAQ:QCOM), however the company could benefit greatly if BlackBerry is successful in its turnaround. If BlackBerry is able to recapture significant market share, it could do for Marvell Technology Group Ltd. (NASDAQ:MRVL) what companies like Samsung and LG Display Co Ltd. (ADR) (NYSE:LPL) do for Qualcomm’s bottom line.
The rest of the Marvell’s revenue comes from the Networking segment includes products for such networking equipment producers as Cisco Systems, Inc. (NASDAQ:CSCO) and Brocade Communications Systems, Inc. (NASDAQ:BRCD).
The Numbers
So are shares of Marvell really that cheap right now? Well, on a P/E basis, they are not. Marvell earned 56 cents per share last year, which means that shares trade for about 20 times earnings. However, this number is deceiving for a couple of reasons.
First, the company is projected to grow its earnings to 78 cents this year, and $0.90 and $1.11 per share in 2014 and 2015, respectively. So, when you consider that Marvell trades at less than 10 times 2015’s consensus earnings, things look a lot better. Additionally, and more importantly, out of Marvell’s $5.5 billion market cap, over $1.9 billion of it is in cash. The company also has absolutely no long-term debt on its balance sheet. When you back out the cash, shares are trading for just 12.8 times TTM earnings, which sounds pretty nice to me considering the kind of growth that is being projected.
However, bear in mind that with increased potential return comes extra risk. Marvell is a relatively small player in an industry that can be very cyclical and very sensitive to what’s going on in its end markets.
The Alternatives
Before we go diving in to Marvell, let’s see if any of its larger rivals would make a better addition to our portfolios. As mentioned before, Marvell competes with companies such as Qualcomm and STMicroelectronics, so let’s take a look at those.
