It might not be obvious to the casual observer, but right now, today, LSI (NASDAQ:LSI) stock offers one of the best values available in the semiconductor industry. Why?
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.
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.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.