I know I'm going to sound like a broken record here, but some ideas just bear repeating. Namely, that when you're dealing with a turnaround situation like Solectron
Whether you focus on quarter-by-quarter or annual results, business for this electronics manufacturing and services company isn't quite back on the growth track just yet. First-quarter revenue was down 9% from last year, and net profits according to generally accepted accounting principles fell by more than half. On a more positive note, reported earnings did match the average estimate and sales were actually a bit higher than expected.
Within the individual business units, nothing really jumped out at me as surprising. Computing, storage, and networking are still the major revenue components, and Cisco
One bit of news that investors may want to follow, though, is that the company is considering a reverse stock split. For those unfamiliar with the concept, the end result would be that every three, four, or five shares of Solectron stock would be converted to one share -- depending on whatever ratio is ultimately approved by the shareholders -- and the stock price would be adjusted upwards accordingly.
More often than not, reverse splits are a desperate act from companies circling the drain to oblivion, but I don't think that's the case here. Whether it makes sense or not, there are investors who won't even consider stocks below $5 per share. So even though Solectron has a viable business, it's not even on some investors' radar. What's more, there is some evidence that reverse splits can work out alright if and when they occur in conjunction with an actual turnaround in the business. Certainly that's what telecommunications company ADCTelecommunications
There are legitimate reasons to be concerned about Solectron, and I won't downplay them. That said, I happen to like the fact that most analysts still really don't like this stock very much -- that suggests at least the possibility that the company could outperform relative to expectations. Still, investors here will have to have patience -- the company may think growth is coming later next year, but a lot can happen between now and then.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).