It's Time to Buy LSI Stock. Here's Why.

It might not be obvious to the casual observer, but right now, today, LSI (NYSE: LSI.DL  ) stock offers one of the best values available in the semiconductor industry. Why?

Three reasons.

LSI is cheaper than it looks
When you stack up LSI stock against a couple of its larger competitors -- Marvell Technology (NASDAQ: MRVL  ) and Texas Instruments (NASDAQ: TXN  ) , it's not immediately clear that LSI is a bargain. Right off the bat, you can see that the stock sells for 30 times earnings -- while TI costs only 23.3 times earnings, and Marvell costs an even 22.0.

That said, looks can be deceiving. You've seen how LSI looks relative to its rivals today. But now take a look at how the stock might look to investors a year from now. Let's take a gander at these companies' "forward" price-to-earnings ratios:

So if you go out 12 months, and look at where LSI might be in a year, what you get is nearly a mirror image of where things stand today. Far from being the most expensive stock in the industry, it turns out LSI could soon be the cheapest.

How'd they do that?
That's a pretty neat trick LSI stock is trying to pull off. But how will they manage it?

One word: Growth.

According to analyst estimates, LSI's already outgrown its rivals by leaps and bounds -- which probably explains why investors are awarding the stock such a high P/E ratio for its past performance.

If the analysts are right, LSI will continue this outperformance in the future, too. Current projections call for LSI stock to grow its earnings at better than 12% annually over the next five years. That's 20% faster than Marvell is expected to grow, and 42% faster than TI. (And that's assuming TI grows at all -- no safe bet considering its track record).

LSI passes the cash test
Meanwhile, if LSI stock doesn't currently generate the absolute best "free cash flow yield" of the three firms named, it's certainly a contender, outperforming Texas Instruments by a hair, and within 1.5 percentage points of Marvell.

LSI Free Cash Flow Yield Chart

LSI Free Cash Flow Yield data by YCharts

And how much do you want to bet that LSI can produce even more cash than Marvell in future years, it it's growing its business 20% faster? Personally, I think it's a pretty safe bet.

And that, Fools, is the reason I think now's a great time to buy LSI stock.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2479005, ~/Articles/ArticleHandler.aspx, 9/25/2016 3:06:55 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
LSI.DL $0.00 Down +0.00 +0.00%
LSI CAPS Rating: *****
MRVL $13.01 Up +0.05 +0.39%
Marvell Technology… CAPS Rating: *****
TXN $68.98 Down -0.78 -1.12%
Texas Instruments CAPS Rating: ***