It's nice to see that management at FormFactor (Nasdaq: FORM) is reading some Foolish commentary. On Tuesday, Anand Chokkavelu wrote about some companies with high levels of cash that would be wise to consider share buyback programs. More specifically, he discussed FormFactor, which at the time was trading below $9 despite having $7.91 in cash per share on its balance sheet. Later that same afternoon the company announced a $50 million share repurchase plan after consulting with Anand.

OK, so maybe the new executive team at FormFactor made this decision before Tuesday, but it is encouraging to see that they also have confidence in the company's growth prospects.  The company has other strong backers as well. Goldman Sachs' (NYSE: GS) Asset Management group owns more than 9% of the outstanding shares, and the Motley Fool Hidden Gems team also continues to be bullish on the stock. Even our outstanding CAPS investor community gave this stock a five-star rating in January.

Unfortunately, the company's share price has been cut by more than half this year, and it is certainly cheap by almost any metric you look at. However, the stock also looked cheap to most investors before the big decline this year. There are plenty of stocks in the bargain bin, but there is always a reason why they became so cheap in the first place. A value investor needs to decide if the cheap price is justified, so let's have a look.

Why so cheap?
The company manufactures semiconductor wafer probe card products that help semiconductor producers test and sort their chips during production. FormFactor has a number of large customers, with Elpida, Intel (Nasdaq: INTC), and Spansion all providing 10% of revenues at points during the past three years. Smaller customers have included Advanced Micro Devices (NYSE: AMD) and Micron (Nasdaq: MU).  

To call this business hypercompetitive would be an understatement, and FormFactor has performed horribly in recent quarters. Actually, if I'm being fair, "horribly" actually overstates the company's performance. FormFactor aggressively pushed into new testing products to diversify away from its expertise in DRAM test equipment, but the results proved abysmal when the company had trouble gaining traction and entered into a phase of aggressive price competition that squashed profitability. The company reported another quarterly loss on Tuesday, which represents the 11th straight quarter in which FormFactor has lost money.

During that time period, the company has seen its revenue decline 71% to $135.3 million for fiscal 2009 from $462 million in 2007. Certainly, the poor economic environment contributed to some of the company's problems, but management has not been able to reverse course as semiconductor demand has improved with the economy.

So what's changed?
The most important change the company has made this year has been in the executive office. In May, the CEO and CFO of the company "stepped down," as the company sought a "return to basics." G. Carl Everett Jr., who was a member of the board at the time, temporarily sat in as CEO, but in September the company hired Tom St. Dennis, formerly a senior vice president at Applied Materials (Nasdaq: AMAT) as well as Novellus Systems (Nasdaq: NVLS), to run the company. The company also hired 20-year Intel veteran Richard DeLateur to serve as CFO.

The management changes have been met with approval by analysts on Wall Street, who cite the experience and success the new management team brings from different areas of the semiconductor supply chain.

An acquisition target?
With a strong balance sheet and such a cheap valuation, there has been much chatter about a possible takeover. However, many long-term investors in the company remember 2007, when the stock was trading above $40. The newly minted executives would have a hard time explaining a deal to these shareholders that was not at a significant premium to the current price. Operationally, if the new management is able to turn around the business, then shares are clearly undervalued. But that is a pretty big if, right?

On the other hand, how many companies would pay a significant premium for a business that hasn't turned a profit in 11 quarters? Sure, a potential buyer would acquire a bunch of cash and no debt, but unfortunately it will also have to take on an unprofitable business that has been hemorrhaging money for years.

Investors would be wise to look at FormFactor for its growth potential, before looking at valuation or buyout potential. Clearly, the stock is cheap, but that doesn't mean it won't get cheaper.

Andrew Bond owns no shares in the companies listed. Intel is a Motley Fool Inside Value pick. Motley Fool Options has recommended buying calls on Intel. Motley Fool Options has recommended a bull call spread position on FormFactor. FormFactor is a Motley Fool Hidden Gems recommendation. The Fool owns shares of Intel and FormFactor.  Try any of our Foolish newsletter services free for 30 days. The Fool has a disclosure policy.