Stocks Fools Love
Alpha Industries, Incorporated

By Joe Masters (TMF Master)
February 8, 2000

Trading at $111 21/32 as of February 7, 2000

Dear Valentine,

I'm sorry I didn't call earlier, my darling, but I was upgrading our wireless service to include high-speed data transmission capabilities so that we can better stay in touch.

Speaking of wireless, with its phenomenal growth potential and all the new consumer services that will become available in the next few years, I've bought a little present that will bring us many happy returns. I know you wanted to go to Hawaii this year, but this particular investment might allow us to travel the world instead.

What I found for us was a small company called Alpha Industries (Nasdaq: AHAA). Alpha is a manufacturer of specialty (GaAs-based) radio-frequency integrated circuits (including switches and power amplifiers) that are used in wireless handsets and in a new generation of products such as PDAs, cable modems, and cable set-top boxes that will allow for broadband (i.e., high-speed) access to the Internet. They supply their products to a range of large, important companies in this field, including Motorola, Ericsson, Nortel, Lucent, 3Com, Mitsubishi, Siemens, Alcatel, General Instruments, and Scientific-Atlanta. And it wouldn't surprise me to see a contract with Nokia down the road as Alpha starts producing the HBT-based circuit products that Nokia employs. Exciting, eh?

I know how you hate math, my dear, but look at some of these numbers. Here's the past 10 quarters of revenues, listed from the earliest to the most recent quarter, in millions of dollars:

$28.6 $30.8 $31.9 $30.0 $29.6 $32.5 $34.2 $38.6 $41.8 $47.5
Nice growth, huh? And it appears as though revenue growth is accelerating. In fact, if you look at the past six quarters of year-over-year revenue growth as a percentage, it looks something like this:
3.5% 5.5% 7.2% 28.7% 41.2% 46.2%
Can you smell those ocean breezes in Tahiti? Alpha's gross margin is around 44% and their operating margin is about 17%. Their net margin percentages over the past 10 quarters, after I adjusted the figures to put them on a comparable tax basis, look like this:
5.8% 7.3% 8.2% 9.4% 10.2% 10.4% 10.9% 11.4% 12.9% 13.3%
Earnings per share over the past 10 quarters, again adjusted for you, were as follows, from the earliest to the most recent quarter reported:
$0.11 $0.14 $0.16 $0.17 $0.19 $0.21 $0.23 $0.25 $0.26 $0.31
Alpha has been maintaining an impressive EPS growth rate even in the face a secondary offering of 3 million shares, which was completed this past June (they needed the money to continue their expansion plans, you know, and they now have about $6.60 per diluted share in liquid assets to help them do this). Ah, that trek across Europe is going to be wonderful.

So how many different excursions will we be able to afford, my love? Well, valuing a stock is always difficult work. I know that several brokerage firms have 12-month price targets ranging anywhere from $75 to $100 per share, and they have estimated that Alpha should earn approximately $1.43 per share during their next fiscal year, which ends in March, 2001 -- but you know those analysts aren't always very dependable.

As for me, I tend to examine companies relative to their peers. Alpha's main competitors, which are "pure plays" in this market, include RF Micro Devices (Nasdaq: RFMD), Anadigics (Nasdaq: ANAD), and Triquint Semiconductor (Nasdaq: TQNT). All those companies are roughly the same size as Alpha and their stocks trade at much higher price-to-sales and price-to-earnings ratios than Alpha's stock does, yet their prospective growth rates are no better than Alpha's, as best as I can determine. In addition, Alpha's financials appear to be in better order than those of its competitors, and I would regard the company's management to be top shelf. This would lead me to believe that the Street has not yet recognized the true potential our little gem. If I'm right about this, and if Alpha can keep delivering, which will be aided by the continuing wireless revolution and the increasing demands for high-speed Internet access, we might be buying that sailboat someday.

Next: Results of 1999's Stocks Fools Love »

Alpha Industries Company Information:
Trades on the Nasdaq under symbol AHAA

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