Standard Microsystems (NASDAQ:SMSC) shareholders must be jumping for joy today. Congrats, folks. If I owned shares that leapt 20% in one day, I'd be excited too.
However, after looking over the company and its financials, I think there's more here than just one strong day's performance. Standard Microsystems possesses many of the traits that make my small-cap checklist (and meet our Motley Fool Hidden Gems criteria). It has strong cash flows, a solid balance sheet, and managers with a 5% stake in the business (admittedly lower than the Fool's preferred 10%).
Standard's $121 million in cash and liquid investments back up approximately one-fourth of the company's market cap. Standard Microsystems' management appears to be applying those funds for shareholders' benefit, paying cash for its recent acquisition of OASIS and repurchasing shares in the past when they became cheaper. I think Standard's cash balance is also a cushion for tough times. Even larger semiconductor companies such as Cypress Semiconductor (NYSE:CY) and National Semiconductor (NYSE:NSM), which target similar product lines, have cyclical businesses and free cash flow ups and downs.
Unfortunately, Standard didn't provide a cash flow statement with its latest quarterly earnings release, but the company's pro forma earnings are a close approximation, and they look solid this quarter.
While I like the overall positives at Standard Microsystems, I don't recommend running out to buy shares today. The semiconductor industry is very competitive, and I haven't thoroughly studied how the business stacks up against its competitors. I do recommend that investors take the time to get familiar with Standard Microsystems and companies like it. The ownership and financial qualities that this company possesses often lead to solid long-term performance.
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Nathan Parmelee has no financial interest in any of the companies mentioned. You can view his profile here. The Motley Fool has an iron-clad disclosure policy.
