According to Needham analyst, Rajvindra Gill, OmniVision counts Huawei and ZTE as clients and since both these companies enjoy solid positions in the Chinese market, things should get better from here as customers in China move to smartphones. The smartphone market in the country is growing at a rapid pace and there’s a great opportunity for growth going forward as 80% users are still on 2G devices in the region.
Going for a drive
OmniVision is upbeat about its prospects in the automotive business. It is counting on various applications, such as the rear view camera, along with surround view and mirrorless cameras. OmniVision has made some notable moves in this segment as it counts some important car makers in Europe and North America as customers.
Last year, Tesla Motors Inc (NASDAQ:TSLA) selected OmniVision’s sensor for the rear-view camera application for the Model S, which I believe is something of great importance. Tesla Motors Inc (NASDAQ:TSLA) is continuously looking to build upon the success of the Model S, and it might even start selling the car in China if it generates enthusiasm at the Chengdu Motor Show later this year. Moreover, Tesla Motors Inc (NASDAQ:TSLA) is looking to enhance the adoption of its car in the U.S. through a number of moves such as expanding its supercharger network and modifying the lease plan.
Tesla seems to be one of the feathers in OmniVision’s automotive cap as the company believes that the proliferation of image sensors in cars of the future will present a big opportunity for it.
And then some more
In addition to all the above-mentioned positives, OmniVision is focused on improving its gross margin further going forward. The company is looking to optimize its supply chain and focusing on the sales of high-margin products to get better in this regard. Throw in a compelling valuation and the deal would seem even sweeter.
OmniVision might seem expensive at 23 times trailing earnings, but when you consider that its revenue and earnings have grown at a solid rate in the past two quarters then it starts to look cheap. Moreover, a forward P/E of just 10 times makes the multiple look better and OmniVision would probably generate the required earnings to justify its cheap valuation going forward, given its solid catalysts.
However, OmniVision is a pretty volatile stock, as seen in the past, but barring a few potholes, the ride is more or less smooth and you should consider giving it a try.
Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Apple and Tesla Motors . The Motley Fool owns shares of Apple and Tesla Motors . Harsh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article A Few Reasons Why This Explosive Stock Is Worth Buying originally appeared on Fool.com is written by Harsh Chauhan.
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