Daily Double
October 4, 1999
By
Ticker: (Nasdaq: POWI)
Phone: 408-523-9200
Website: www.powerint.com
Price (10/1/99): $71
How Did it Double?
Execute, execute, execute -- that may very well be the mantra inside the walls of Power Integrations. The company has vibrantly grown its top line over the past several quarters while at the same time expanding its margins. Combine these two factors and *zap* you've got some powerful earnings growth. Power Integrations has now posted positive earnings comparisons over the year-ago quarter for nine straight quarters.
The most recent second quarter earnings report highlights exactly the type of growth Power Integrations' investors have gotten used to:
(in millions) Q2 1999 Q2 1998 Change Sales $22.979 $15.113 +52.0% Operating Earnings $5.806 $2.685 +116.2% Net Income $5.300 $2.153 +146.2% EPS $0.38 $0.16 +137.5%It's also fairly impressive that Power Integrations has been able to post such results in the face of an economic downturn in Asia, a region responsible for over half of the company's sales. This speaks volumes about the attractiveness of the company's power transformation products. In short, the company has powered up its earnings, giving those owning the stock some electrifying returns.
Business Description
Power Integrations is one of the nation's largest manufacturers of power-related circuits and semiconductors. The lion's share of the firm's sales come from its TOPSwitch family of products that take high-voltage AC current and efficiently transform it to DC current. The products are used in a vast array of electronic devices, including cell phones, laptop computers, and video games.
Since Power Integrations makes components for personal electronic devices, it should come as little surprise that over half of the firm's sales are to companies in Asia. Moreover, Power Integrations has a comparatively short customer list, with Motorola (NYSE: MOT) alone responsible for between 10-20% of Power Integrations' revenue.
The company is based in Sunnyvale, California.
Financial Facts
Income Statement
12-month sales: $84.3 million
12-month income: $18.7 million
12-month EPS: $1.38
Profit Margin: 22.2%
Market Cap: $1,000.5 million
Balance Sheet
Cash and Equivalents: $7.9 million
Current Assets: $71.5 million
Total Assets: $79.5 million
Current Liabilities: $15.7 million
Long-term Debt: $1.9 million
Total Liabilities: $17.7 million
Ratios
Price-to-earnings: 51.4
Price-to-sales: 11.9
How Could You Have Found This Double?
Many Fools may already be familiar with Power Integrations since the company has been a long-time member of companies spotlighted by the Foolish Eight screen. The Foolish Eight are eight criteria that Dave and Tom Gardner listed as attractive attributes for small growth stocks in the original Motley Fool Investment Guide. These characteristics include:
- A high relative strength of 90 or more
- A minimum price tag of $7 per share
- Daily dollar trading volume between $1 million to $25 million
- Sales and earnings growth of 25% or greater
- $500 million or less in sales
- Net profit margin of at least 7%
- Insider holdings of 10% or more
- Positive cash flow from operations
Power Integrations fit all of the criteria above, and in some cases, namely sales and earnings growth and relative strength, scored exceptionally high. Furthermore, when Wall Street has bothered to estimate earnings for the company, Power Integrations has outperformed expectations. These are all signs of a winning small-cap growth stock.
Where to From Here?
A potential problem with investing in a company like Power Integrations is that the company does not sell products that the average consumer may be familiar with. Unless one is an electrical engineer familiar with power supplies, you're not likely to directly run across any of Power's products. (Although, many investors may this moment be using a device that has one of the company's circuits in it and not even know it.)
One of the cardinal Foolish rules of investing is "Know Thy Company," and that includes its products. Potential investors would probably do themselves a favor by studying Power Integrations' products a little closer than usual to understand the underlying dynamics at work with the company. Power Integrations' Web page is a good place to start this research.
That said, Power's products appear to be quite attractive to a number of manufacturing companies. The firm's power supplies are found in a huge variety of electronic consumer products, including cellular phones, that are seeing increased use. When efficiency is key in converting AC to DC, Power Integrations seems to have the products of choice for engineers around the globe.
The company also appears to be on the right track towards ongoing growth. Power Integrations is expected to continue its earnings growth at a 25% annual pace over the next five years, but the company has a history of blowing Wall Street estimates out of the water.
In a nutshell, Power Integrations appears to be a healthy little company that is growing vibrantly. For those who like small-cap growth stocks, it's certainly one worth keeping on the radar.
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