Hot Flashes From Silicon Motion

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Spice up your Valentine's Day with even more smokin' hot investments.

When was the last time you saw a tech stock trade for 10.2 times current-year earnings? Can't remember? I'm not surprised. Here's a look at the 2008 multiples for some of the biggest names in tech.

Company	2008 P/E
Apple	23.8
Google	25.7
Intel (Nasdaq: INTC)	14.9
Microsoft	14.5
Texas Instruments (NYSE: TXN)	14.4

Source: Capital IQ, a division of Standard & Poor's.

I'm a big believer in most of these businesses. Apple, especially. Yet I'll stack my super-cheap tech wonder, Taiwan's Silicon Motion (Nasdaq: SIMO), up against any of them. Here's why.

Silicon Motion is a supplier of controllers for flash memory. What that means is that, instead of buying and selling super-cheap memory chips the way Micron (NYSE: MU), STMicroelectronics (Nasdaq: STM), and Samsung do, my stock-market heartthrob sells electronics that help memory chips process digital commands from the devices they serve. Common examples would be storing a picture or retrieving a song.

There are, of course, advantages and disadvantages to participating in this market. The key advantage is volume. Millions of devices require flash memory, and most devices that require flash require a controller. Digital cameras, for example.

The key disadvantage is competition. Texas Instruments and Freescale Semiconductor are two of many chipmakers to build flash-memory controllers directly into chips for more complex equipment, such as PCs. Were this practice to become common for smaller devices, Silicon Motion would pay a steep price.

So far, that hasn't occurred, and I don't believe it will. Not soon, anyway. Samsung, Micron, and their peers update their flash offerings too often for those who make the brains of these devices to keep pace.

And remember: Silicon Motion is priced low enough to easily compensate for any potential risk.

Do the math with me. Capital IQ says that Silicon Motion has never traded for less than 12.2 times trailing earnings in its history. Assuming that we once again reach that lowball multiple in December 2008, and that Silicon Motion earns the $1.52 per share in net income that analysts expect, then its shares would be worth $18.50 each at that time. That's a 16% premium from yesterday's close.

But that could be a conservative estimate. Silicon Motion has boosted earnings by 69.8% annually over the past three years and, according to Capital IQ, is expected to go on improving its bottom line by 30% a year over the next five. Stocks growing that quickly rarely trade for 12 times earnings.

And when they do -- like, say, now -- the bargain doesn't last long. Pucker up.

Get your clicks with related Foolishness:

• Silicon Motion is a top growth stock.
• No memory shortage here.