SILC – Silicom Limited (NASDAQ) – (Closing Price – $9.50)
Silicom Ltd. announced their first quarter 2008 results yesterday and reported an increase in revenue but flat growth in earnings. Amazingly, the stock price has dropped more than 25% since the news.
Silicom reported revenue of 7.70 million which was up 27% compared to Q1 2007 and up 3% compared to the prior quarter. EPS came in at 0.26 per diluted share. This was an improvement of 0.04 over last year but EPS has been flat the last few quarters.
I don’t think flat growth merited such a huge sell off considering the fact that businesses have been cautious in their spending due to the uncertain economic climate (flat growth could actually be looked at as a positive). Also, Silicom wasn’t trading at an expensive valuation before earnings so it shouldn’t have sold off so much after earnings.
I think the share price of Silicom may continue to trade flat or down for a quarter two if companies continue to cut back on their spending but the stock price will quickly rebound when the economic picture starts to look better. I think it would be wise to be patient with Silicom and I am going to recommend to continue holding your shares.
Disclaimer: I currently own shares of SILC.
The Credit Crisis and Potential Shorts
Financial companies have seen severe declines over the past year and they still have the potential to go down a lot further. The reason financial companies are on such shaky ground is because the risk of rising foreclosures and loan defaults has resulted in a really severe credit crisis. For those of you who don’t understand the current credit fiasco I will try to explain it and show why financial companies still present good shorting opportunities.
Before I start I want to point out that the stock market surged on the Fed cut just like I predicted and also sold off quickly just like I predicted. If you bought financials yesterday I hope you sold the news and got out quickly. If you did play the short term volatility I would recommend that you take new short positions in financials again. Now I’ll go back to the credit fiasco.
The last time the Fed tried to fight off a recession Alan Greenspan, who deserves some blame for the current credit mess, lowered interest rates to ridiculously low levels. Consequently, there was plenty of easy money to go around. Since interest rates were at extremely low levels banks were happy to provide consumers with just about any type of loan they wanted without much regard to the credit worthiness of the consumer. (more…)
Posted in Commentary | 3 Comments »