OmniVision Technologies: Reasons to BuyOVTI) is recording strong growth in its financial performance as the chipmaker’s products are finding impressive traction in the end market. For instance, in the first quarter, OmniVision’s revenue had increased 15% sequentially to $329.9 million. Going forward, the company has provided revenue guidance for the second quarter of fiscal 2016 and estimates it to be in $300 million to $330 million range.
The digital imaging solutions company reported impressive growth across its business operations primarily driven by solid customer traction in its automotive and mobile phone markets.
Improving traction across end markets
OmniVision has substantial market opportunity in each of the mobile phones, entertainment, notebook/webcam, DSC/DVC, automotive, security and several other key growth segments. The company is also witnessing a notable 9% compound annual growth rate for the CMOS image sensor market. Looking ahead, this market is forecasted to grow to 5 billion units by 2018 and the smartphone market is estimated to drive future volume growth
OmniVision is seeing strong growth in the mobile phone segment with present mobile phones being introduced with high-resolution 20 megapixels camera. In addition, the mobile segment is leading the market by capturing approximately 69% of the consolidated market share as of the fourth quarter of fiscal year 2014. In addition, the demand for mobile phones with greater than 2 megapixels camera is increasingly outpacing the demand for 1 megapixels and VGA camera equipped phones.
According to Oppenheimer's Richard Schafer, an accelerated shift to smart cars is a long-term growth opportunity for chip makers including, OmniVision Technologies, Inc. which is believed to be a key niche player in image sensor supply for these smart cars.
OmniVision is estimated to enjoy the benefits of the changing market trend from VGA camera equipped mobile phones to more than 20 megapixels camera equipped mobile phones and the expanding demand for smart cars with advanced commuting technologies.
From the discussion above, we can see that OmniVision’s end market is improving at an impressive pace. As a result, the company’s financials will continue getting better. But, at the same time, OmniVision’s growth valuation is not up to the mark as it is a loss making company. For instance, the company’s PEG ratio is a negative 7.59, depicting no growth but a decline as compared to the industry’s solid growth average of 0.76.
However, OmniVision seems rightly valued with trailing P/E and forward P/E ratios of 22.72 and 16.84, respectively, both of which are lower than the industry’s average P/E of 22.38. The profit margin of 5.09% also seems satisfactory. Finally, the company has a strong balance sheet with a total cash position of $607.20 million and a smaller total debt of $33.77 million. Thus, in my opinion, OmniVision is a good investment option considering its end market prospects and attractive valuation.
Published on Sep 21, 2015By Vinay Singh