Here’s the pitch that a bunch of readers sent me this week:
“On June 28, 2011, a tiny Sunnyvale, CA based technology company, quietly made an incredible announcement.
“In short, they’ve developed a new static random-access memory (“SRAM” for short) chip that drastically boosts online processing speeds.
“Simply put, these chips are the fastest on the market… move at staggering rates of up to 1.35 billion transactions per second… and could revolutionize computer networking as we know it.
“Right now its shares trade for under $9, but as demand for its lightning-fast chips continues to soar… it likely won’t stay cheap for very long.
“To find out more about this exciting company, be sure to pay close attention at the 5:07 mark of this video.”
It’s a link to yet another of the interminable newsletter promoting videos that are out there — folks in the biz tell me that the videos improve response rates dramatically, but your friendly neighborhood Gumshoe just finds them slow and boring (thankfully many of them provide a transcript, too, for more efficient sleuthification). And no, while it feels like forever that’s the five minute, seven second mark — not five hours seven minutes.
And I did listen to some of it, and read the rest. Here’s the balance of clues that they provide about this little stock:
“PENNY CAP STOCK #2
“Technology play that’s set to explode!
“This tiny semiconductor company’s “SRAM” technology drastically boosts speeds of computers. Its chips are the fastest on the market and work at a mind-boggling nine nanoseconds. Its revenue doubled this quarter over last year and earnings have tripled. And the stock trades at just 15-times earnings, but it won’t stay this cheap for long. Demand for its lightning-fast semiconductors is set to soar.”
I’ve put the cart before the horse, though — what newsletter is this? It sounds like a new one, the ad goes on for a while about what they call the “Penny Cap Portfolio” and their special report “Penny Stock Riches,” but what they’re really selling are subscriptions to the White Cap Report, which has been around for several years as a growth stock newsletter (with middling results per the reviews we’ve collected, you can see reader-submitted reviews here).
And yes, it’s a pretty inexpensive newsletter — “on sale,” as most usually are, for about $50, which can often be a bad combo when you’re talking about penny stocks (if a stock is tiny and trades in low volume, and low-cost newsletters from major publishers can be expected to have at least tens of thousands of subscribers, then you can see how the numbers might lead to severe volatility as subscribers buy and sell).
This is what they promise:
“Introducing SAFE Penny Stocks
“Fact is, our revolutionary screening method – which we spent five years perfecting – lets us identify SAFE penny stocks that can hand you astounding gains no matter what the market does.”
OK, so that’s the basic idea — penny stocks and microcap companies that are “safe.” And yes, I’m ready now — bring on all the jokes about how the term “safe penny stocks” is akin to “jumbo shrimp” (or “military intelligence” or “business ethics,” for all you George Carlin fans out there).
Which means we can now come full circle — which is this “safe” penny stock being teased by the White Cappers?
Well, it ain’t exactly a passel of hints, but we’ll call it a congeries of clues … and we’ll at least toss it into the Thinkolator to see what it can cogitate up for us …
Hmm, OK — we actually get a very high level of certitude here … this is almost certainly GSI Technology (GSIT).
Which isn’t to say I know the company, it’s just the match for the clues. Why don’t I know the company, you ask? Well, this excerpt from that June 28 press release ought to help you answer that question:
“GSI Technology, Inc. today announced successful qualification of the 3rd generation SigmaQuad™ and SigmaDDR™ SRAM families. The GS8673E devices feature clock speeds up to 675 MHz and up to 1.35 billion transactions per second, on-chip Error Correction Control for virtually zero Soft Error Rate performance and IEEE 1149.1 JTAG-compliant Boundary Scan. The GS8673E family is qualified and in volume production. “
I’ll admit that it sounds good, but I have no idea what it actually means. I did enjoy, however, that they also threw in some chip designer trash-talking in that PR:
“‘When we saw our Fast SRAM competitors head down the wrong path, emphasizing data bandwidth over transaction rate, it became clear that we had to go a different direction if the networking market was going to get real performance improvements in a timely manner,’ said David Chapman, VP of Marketing and Applications Engineering for GSI Technology. ‘Because we were willing to drive forward early, the Burst of 2 SigmaQuad-IIIe was there when 400G network processor designers needed it.’”
I can translate that paragraph: “Our competitors are losers! Put that in your pipe and smoke it, chumps!”
The company is tiny, it has a market cap of less than $200 million and a share price just under seven bucks — and the news release about this latest produce advancement didn’t do anything at all for their share price. The larger news lately seems to be all patent related for GSI — they were sued and brought to the ITC over patent infringements for alleged infringement of some of Cypress Semiconductor’s SRAM patents, and GSI has said that they will respond “vigorously” in their own defense and also just this week turned around and filed suit against Cypress for anticompetitive practices. So this back and forth might go on for a while.
That lawsuit, though, was not what drove the shares down from the $9 range to where they are today — for that we can blame plain old financial performance, GSI’s last earnings report disappointed and their forecast was weaker than expected, so the stock fell by about 25% back in early May.
And whaddya know, but they’re releasing their next quarterly earnings tomorrow (the conference call will be at 4:30 pm EST) … so one would expect that analysts and investors will be watching and listening very closely both to see if earnings and sales keep pace as well as to hear any legal updates on this patent foofaraw (chip companies sue each other all the time, and I have no idea what the merits might be — but patent chatter is getting even more attention than usual from investors these days). There are only three analysts in Yahoo’s coverage survey, but they expect an average of 11 cents per share in earnings, which is the same as GSIT reported last quarter.
The stock looks pretty inexpensive, if you assume that they don’t get crushed by patent claims or outpaced by competitors — if they really have industry-leading products then buying the shares at a trailing PE of about ten and less than 10X 2013 earnings (analysts estimate 54 cents per share for this fiscal year, which started April 1, and big growth to 77 cents next year). Which sounds pretty dang cheap even in a world where semiconductor companies are generally inexpensive — roughly the same metrics as you’ll see for Intel (INTC), though presumably GSIT should be able to show much more dramatic growth since they’re about 1% of Intel’s size (they’re not in exactly the same business, that’s just a gross comparison).
GSIT also has a lot of cash on the books, about $50 million, so if you back that out as some folks are wont to do with high-cash tech companies, the effective PE ratio would be more like 9 for the coming year and 6.5 for next year.
So yes, I can see how the numbers would lead you to give this the “safe penny stock” label — I don’t know much more about the company or the SRAM business, but of course with a small firm like this the volatility should be expected to be far greater than for bigger stocks, even if they are trading at what looks like a pretty decent valuation. And I have no expertise to tell you whether the lawyering from Cypress is going to be a fly in their soup or an elephant in their soup.
There you have it, though — a little chip company that looks pretty cheap, and that is almost certainly being touted by the folks at White Cap Report as a “safe penny stock.” Sound like your kind of pick, or do you have any info to share about GSI Technologies? Our ears are wide open, just use the little comment box below — thanks!
Full disclosure: I own shares of Intel. As of this writing I am not invested in any other company mentioned above, and I will not trade in any investment mentioned for at least three days.