Each year, we take a look back in order to look ahead. We do this by industry, by trend, and ultimately by stock. Here's a closer look at MIPS Technologies (Nasdaq: MIPS ) Fool-style.
|CAPS stars (out of 5)||**|
|Bullish pitches||30 out of 31|
|Highest rated peers||ON Semiconductor, O2Micro International, Monolithic Power Systems|
Data current as of Dec. 29.
Color me surprised by how Fools rate MIPS. Just two stars? History must be informing the rating. Semiconductors are a cyclical business, and in years past MIPS hasn't played in the highest growth areas of the industry: home entertainment and networking devices, mainly. But that may be changing.
MIPS has begun challenging ARM Holdings (Nasdaq: ARMH ) in developing multithreading chips for smartphones. Thanks to a deal with Google (Nasdaq: GOOG ) , several new Android devices will be powered by MIPS technology.
"Probable 18% annual earnings growth over the immediate future; this business is highly levered to growth in the hand-set, mobile computing market which is growing world-wide. ... This company licenses its designs for chips and thus has no exposure to manufacturing costs, making this a high-margin, very attractive investment because licensing revenue is on-going when products are successful," wrote Foolish investor mimihoohoo2 earlier this month.
Looking back to look forward
Most often, the optimists that reigned in the year's big MIPS Technologies stories at Fool.com:
- In February, All-Star CAPS investors began rating the stock to outperform. It was a wave of bullishness that proved to be astonishingly prescient. Shares of MIPS Technologies have more than tripled year to date.
- By August, Sigma Designs (Nasdaq: SIGM ) had decided to bet big on the MIPS processor design. The implication? Using the MIPS architecture would give Sigma an advantage in its competition with Broadcom (Nasdaq: BRCM ) and Texas Instruments (NYSE: TXN ) .
- One month later, MIPS was looking like a bottle rocket. The shares were up 87% in a year -- and that was at the beginning of the rally.
- By October, options investors had joined the party. Most were bullish: 98% of the open options interest was in calls. (Options that profit from a rising stock price.)
- But it would take till November for me to notice MIPS. When I finally took a closer look, I found a company that looked surprisingly like a Rule Breaker. I also found big interest from big money investors. Among the investors whose opinions really matter, only the insiders were acting bearish.
- No matter. Mad Money host Jim Cramer touted the stock as a growth play earlier this month, sending the shares up more than 13% in intraday trading. Call it a fitting rally for the year's second-best-performing semiconductor stock.
But don't take my word for it. Check out MIPS' extraordinary financial performance:
Fiscal 2010-11 Performance
|Normalized net income growth||(73.5%)||(36.1%)||9,613.9%||273.6%|
|Return on capital||15.9%||21.9%||41.9%||41.7%|
Source: Capital IQ, a division of Standard & Poor's.
And here's what analysts expect from MIPS Technologies over the next two years, according to data compiled by Capital IQ:
Capital IQ Estimates
|Revenue estimate||$87.1 million||$95.9 million|
|Normalized profit per share estimate||$0.51||$0.60|
Source: Capital IQ. Data current as of Dec. 29.
Foolish outlook: bullish
Only the blind or perma-bull would assert MIPS is cheap at current prices. The stock trades for 26 times the consensus 2012 earnings estimate. MIPS has to at least make good on that number -- or do a great deal better -- in order to guarantee market-beating returns to today's buyers.
And yet I like the odds of exactly that occurring. Android is growing into a pervasive mobile operating system. MIPS' early advantage in creating compatible chips for Android devices should lead to the sort of outsized growth investors are hoping for.
Now it's your turn to weigh in. What do you think of MIPS Technologies' prospects at current prices? Use the comments box below to explain your thinking. You can also join me in rating MIPS Technologies in Motley Fool CAPS.
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