When longtime Stock Advisor recommendation TTM Technologies (Nasdaq: TTMI) reported earnings late last week, the stock was essentially drawn and quartered. Over the last week or so, TTM shares have dropped by 30%, far worse than the drubbing we've seen the general market take.
That action took TTM shares back where they were a year ago, and TTM rarely trades at P/E ratios as low as today's 8.5.
Is this a tremendous buy-in opportunity, or a real apocalypse in the making? Let's figure it out.
Just the numbers
Second-quarter sales rose 18% year over year, but the year-ago net profit of $0.06 per share turned into a $0.26 loss per share. Ouch. Excluding the effects of a large asset impairment charge -- taking some outdated equipment offline forever -- you'd get non-GAAP earnings of $0.40 per share, up from $0.28 a year ago.
The way you feel about one-time accounting charges will make a big difference to how you feel about this quarter. In my opinion, true one-time charges like this one belong on the "ignore" list because they don't factor into how the business will run in the future.
Moreover, the incoming order flow looks strong. In the face of a large shipment run to the defense industry, which lowered the all-important book-to-bill ratio somewhat, TTM still saw overall book-to-bill just below the 1.0 mark. That's up from the 0.8 range in the fourth quarter, and the ratio is expected to stay strong going into the next period.
Ups and downs
The networking market delivered much of the quarter's revenue growth, which might come as a surprise if you've seen Cisco Systems (Nasdaq: CSCO), Juniper Networks (Nasdaq: JNPR), and many other networkers getting hammered on slow results recently. Let's just say that TTM gets paid for its circuit boards whether or not Cisco sells the switch it was made for. The networking customers may have been a bit optimistic in placing their early summer orders, betting on a market recovery in the second half. It's an important market for TTM, given that four of its five largest customers work in that sector.
But then the single largest client is Apple (Nasdaq: AAPL). You might know Cirrus Logic (Nasdaq: CRUS), Broadcom (Nasdaq: BRCM), and reportedly even Taiwan Semiconductor Manufacturing (NYSE: TSM) as oblique plays on Apple's success; TTM is another play like that, and perhaps the least obvious of the lot. If the networking orders start to dry up, Apple gives TTM a terrific Plan B to keep its sales going.
The verdict
So what's the final verdict? If I had any dry powder in my portfolio today, I'd be happy to spend some of it on TTM shares. The stock was cheap before this fall and the report didn't uncover any new weaknesses in the business model. This might not be the absolute bottom for TTM shares -- if the next quarter shows a networking pullback as Cisco and friends adjust to a longer slump than they had thought, that's when the other shoe would drop.
But even so, TTM is too cheap to begin with. You could always take a half position now, ready to follow up with another half in November. The bounce back to P/E ratios in the mid-teens and concomitant share prices north of $20 should be swift once this storm has passed. (You heard it here first.)
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