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A well known Ivy League graduate from the New Haven area was a man before his time He exploited uneducated masses to make circuit boards for the auto industry. Working in a storefront on the Connecticut coast, often without heat, the fledgling operation relied on government assistance to keep it in the black. The cuts by the Reagan administration put an end to cheap labor and the operation ended.
What’s the point of this story? Absolutely none..but it goes to show you it ain’t easy to make money in the electronics business. Here’s a more important story. There once was a wrestler called Big Scott Hall. He was a loser in the AWA so he switched to the WWF. There he became a big star with a Puerto Rican accent even though he was not Hispanic.
Then I think he drank too much and got fired by the WWF so they brought back the character, Razor Ramon, played some guy named Richard Bogner, who didn’t even look like Scott Hall. That reminds me of our fraternity parties. There was always a girl named Janet at our parties but when she wasn’t at a party there was another girl there who kind of looked like her so we called her “Mock Janet”.
Neither Janet nor Mock Janet had a cellphone back then, because cell phones weren’t invented. Had cellphones been invented, they would have certainly carried a Razr phone because Razr phones are thin. Neither Mock Janet or Janet were very thin, but they would have wanted a Razr phone so they could call around and see where all the Titans were hiding.
As cell phones have become a must-have for nearly every businessperson, mother, father and teenager, demand for the flexible circuits that make them function has boomed.
Today I bought MFLX (Multi-Fineline Electronix ) at 60.50. I will sell it in 4 – 6 weeks at 69.67. Here’s why I like MFLX:
MFLX is up over 300% in the last 12 months yet its PE is only 31. Yea, it’s a little bit pricey but when you consider its growth opportunities, it’s a cheapie. It’s R^2 over the last 12 months has been 0.83 and over the last 6 months is a rock solid 0.92. Yes..this stock wants to go up..and it keeps going up and up and up. Another 15% is chump change.
The company, commonly known as M-Flex, makes thin, flexible printed circuits and circuit assemblies that transmit signals within cell phones, personal digital assistants, bar-code scanners and other small gadgets. The company's revenue has exploded by 41% in fiscal 2005, which ended in September, and 66% in the December first quarter.
All kidding aside, everyone wants a Razr phone. You know those fat guys that put a cellphone on their belts. When they bend over and their rolls of adipose tissue collide with the cellphone, it makes for a very uncomfortable feeling. Not only that, but their fat cells start pressing the buttons on the phone, and pretty soon you’re leaving 16 minute undiscernible voicemails on other people’s cellphones. But with the Razr phone, when you bend over, you can’t feel the phone so you don’t even think you’re fat.
Think about this for a second. What exactly is this trend? Do you think for a minute that cell phones are going to get bigger? Yea sure…you see that guy walk into the Verizon store and say, “Can I have your largest cell phone please?” Pay attention..cell phones are getting smaller and smaller. MFLX components are what makes these cellphones smaller. This is the trend, my friend.
Motorola accounts for more than 80% of M-Flex's revenues. Don’t worry, Motorola’s not going anywhere. My friend Bone used to work for Motorola in Ft. Lauderdale. Titanomega and myself had fun with Bone in Ft. Lauderdale. Bone is still in Ft. Lauderdale.
MFLX is a leading global provider of high-quality, technologically advanced flexible printed circuit and value-added component assembly solutions to the electronics industry. They are one of a limited number of manufacturers that provides a seamless, integrated end-to-end flexible printed circuit solution for their customers, ranging from design and application engineering, prototyping and high-volume manufacturing to turnkey component assembly and testing. MFLX targets their solutions within the electronics market and, in particular, focuses on applications where flexible printed circuits facilitate human interaction with an electronic device and are the enabling technology in achieving a desired size, shape, weight or functionality of the device. Current applications for MFLX products include mobile phones and smart mobile devices, portable bar code scanners, personal digital assistants, power supplies and consumable medical sensors. The company expects that the usage of flexible printed circuits and component assemblies will continue to increase in their target markets.
MFLX orders have been skyrocketing and their backlog is so high that they have elected to expanding capacity by building a factory in near Suzhou, China which will allow M-Flex to expand its output roughly 27%. Four plants and a prestigious list of satisfied customers straddle the North American, South American, Asian, and European continents. My friend Smelles went to Taiwan. Actually what happened was he missed his plane, so he had to hide 24 hours in Spanky’s apartment until the next plane left Kennedy for Taiwan. Now he speaks Chinese but we still call him Smelles.
The flexible printed circuits that MFLX manufactures are designed specifically for each application, frequently requiring significant joint design activities with the customer at the start of a project. Multi-Fineline has developed design methodologies that solve difficult interconnection problems and save customers time and money. Flexible printed circuits can be enhanced by attaching electronic components, such as connectors, switches, resistors, capacitors, light emitting devices, integrated circuits, cameras and optical sensors, to the circuit.
M-Flex’s circuit board is superior to those made by its competition because MFLX makes them detailed to their customer’s requirements. That way, the customer can design their own product in the way it suits their customers rather than in a way that suits their suppliers. This translates to more revenue for the customer, who then becomes embedded with M-Flex.
So in a way, M-Flex is doing the front end design work for their own customers. What makes the flexible circuit board so cool is that it isn’t really a board, because you can bend it. This is why Motorola could actually make such a thin cell phone, because the circuit “boards” actually wrap around other components of the phone and include other components of the phone on the board. M-Flex is the leader in the US in these commercial applications.
Ever go to a Little League game? You always see all the dads hunched over the fence scrolling their Blackberry wheels pretending that they are watching their kid play? Actually they don’t want to really watch their kid, because their kid usually strikes out or makes an error. The reason for that is that their kid has no athletic ability because of the inferior genes passed on by his father, or even if he did have athletic ability passed on by his trophy wife mom, he can’t apply it because his dad is too busy looking at his Blackberry to be playing catch with his kid. More and more dads are using Blackberry’s and more or more kids are going to suck at baseball as a result. However the good news is that with the use of more Blackberry’s, you’ll see more and more MFLX circuits sold.
From grocery stores to manufacturing plants and shipping companies, everyone needs to track their goods. Bar Coding provides them with the solution they need. M-FLEX supplies flex to keep Bar Coding equipment top of the line. So now we know that people buy 0.6% more Yodels than Ho-Ho’s and that they will all want to put a RAZR phone on their belt loop.
Because MFLX makes the circuits in China, they can make the boards even cheaper than they can be made in an unheated storefront in Connecticut. MFLX’s larger strategy is to find components it can add to its flex circuits, which will in turn add value to its core product. The more junk that goes into cellphones (e.g. Ipod functionality) the more MFLX circuits will be sold.
A good story, yes, but how does it translate to an increase in stock price. A good place to start this analysis is with earnings earnings earnings.
On Feb 2, MFLX reported that net sales for the fiscal first quarter ended December 31, 2005, increased by 66 percent to $139.7 million from $84.4 million for the first quarter of fiscal 2005. Net income for the fiscal first quarter of 2006 increased 82 percent to $17.3 million, or $0.69 per diluted share, compared to $9.5 million, or $0.38 per diluted share, for the same period in fiscal 2005.
The company's continued strong performance during the first quarter of fiscal 2006 resulted from significant growth in revenues from the wireless telecommunications sector of its business, driven by an exceptionally strong increase in sales to its largest customer (Motorola) , which increased approximately 82.7 percent compared to the same period in fiscal 2005. By the way, Motorola has been kicking butt lately.
The company itself expects its net sales for the second quarter ending March 31, 2006, to range between $120 million and $132 million and net income for the same period of between $11.0 million and $13.0 million. Representing an anticipated increase in net sales of up to 71 percent and net income of up to 65 percent over the second quarter of fiscal 2005.
M-Flex, given its low-cost manufacturing capacity in China, its positive free cash flow and its debt-free balance sheet, is positioned to grow earnings faster than its peers. M-Flex also is building relationships with other handset customers, which are expected to make up 10% of total revenue over the next quarter or two.
ANAL-ysts expect MFLX to sell $558 million in fiscal 2006 generating $2.28/share in earnings and then grow to $689 million in 2007 with earnings of $2.64. Ooops…I laughed so hard I spit out coffee and it ran down my nose. $$$MR. MARKET$$$ sees 2006 revenue of $695 million with earnings of $2.75 per share. In the year 2007, MFLX will nail down $834 million in revenue and earnings of $3.30 per share. Take the $2.75 for 2006 and use today’s PE of 31, you get $85.25 per share, well past my sell target. By the way, MFLX has smashed the ANAL-ysts numbers in the last 4 quarters and they have increased their guidance in the last 30 days.
Supporting these earnings projections are the solid financial performance of the company. ROE is 24.8% vs. 14% for the industry. Return on assets (remember their asset base will grow soon with the new factory) is 17.5% vs. the industry average of only 5%. TTM Sales growth is 45% vs. industry growth of 6%. Earnings go along with these figures. Operating margin is 15% vs. 7% for the industry. Clearly MFLX has some pricing power. MFLX has no long term debt.
Certainly these numbers justify the higher PE of this stock. The percent of stock owned by institutions is only 40%. Lots of muscle left to move this stock price. Here’s a comment from management:
"The overall strength of the wireless sector and market demand for the products of our largest customer were the major contributors to our stronger than expected growth during the quarter. Two other leading handset manufacturers have progressed beyond prototyping and pre-production and are now in the early stages of volume production. These new handset customers are expected to ramp up gradually during the next six months. One of these customers for whom we have added new programs over the past several months is expected to reach nearly 10 percent of our quarterly revenue in the second half of calendar 2006.”
Somebody get this guy a RAZR phone so $$$MR. MARKET$$$ can call him and teach him the fine art of braggadocio. If I had the quarter that this guy had, I’d be running around nude with my hair on fire, not mumbling such gibberish. Anyway, when you cut the deck in Atlantic City, remember it’s thin to win.
I am HUGE!
$$$MR. MARKET$$$
Did you like this write up? If so, send me an email, I love to hear your feedback. Better yet, forward this on to 3 of your friends.
What’s the point of this story? Absolutely none..but it goes to show you it ain’t easy to make money in the electronics business. Here’s a more important story. There once was a wrestler called Big Scott Hall. He was a loser in the AWA so he switched to the WWF. There he became a big star with a Puerto Rican accent even though he was not Hispanic.
Then I think he drank too much and got fired by the WWF so they brought back the character, Razor Ramon, played some guy named Richard Bogner, who didn’t even look like Scott Hall. That reminds me of our fraternity parties. There was always a girl named Janet at our parties but when she wasn’t at a party there was another girl there who kind of looked like her so we called her “Mock Janet”.
Neither Janet nor Mock Janet had a cellphone back then, because cell phones weren’t invented. Had cellphones been invented, they would have certainly carried a Razr phone because Razr phones are thin. Neither Mock Janet or Janet were very thin, but they would have wanted a Razr phone so they could call around and see where all the Titans were hiding.
As cell phones have become a must-have for nearly every businessperson, mother, father and teenager, demand for the flexible circuits that make them function has boomed.
Today I bought MFLX (Multi-Fineline Electronix ) at 60.50. I will sell it in 4 – 6 weeks at 69.67. Here’s why I like MFLX:
MFLX is up over 300% in the last 12 months yet its PE is only 31. Yea, it’s a little bit pricey but when you consider its growth opportunities, it’s a cheapie. It’s R^2 over the last 12 months has been 0.83 and over the last 6 months is a rock solid 0.92. Yes..this stock wants to go up..and it keeps going up and up and up. Another 15% is chump change.
The company, commonly known as M-Flex, makes thin, flexible printed circuits and circuit assemblies that transmit signals within cell phones, personal digital assistants, bar-code scanners and other small gadgets. The company's revenue has exploded by 41% in fiscal 2005, which ended in September, and 66% in the December first quarter.
All kidding aside, everyone wants a Razr phone. You know those fat guys that put a cellphone on their belts. When they bend over and their rolls of adipose tissue collide with the cellphone, it makes for a very uncomfortable feeling. Not only that, but their fat cells start pressing the buttons on the phone, and pretty soon you’re leaving 16 minute undiscernible voicemails on other people’s cellphones. But with the Razr phone, when you bend over, you can’t feel the phone so you don’t even think you’re fat.
Think about this for a second. What exactly is this trend? Do you think for a minute that cell phones are going to get bigger? Yea sure…you see that guy walk into the Verizon store and say, “Can I have your largest cell phone please?” Pay attention..cell phones are getting smaller and smaller. MFLX components are what makes these cellphones smaller. This is the trend, my friend.
Motorola accounts for more than 80% of M-Flex's revenues. Don’t worry, Motorola’s not going anywhere. My friend Bone used to work for Motorola in Ft. Lauderdale. Titanomega and myself had fun with Bone in Ft. Lauderdale. Bone is still in Ft. Lauderdale.
MFLX is a leading global provider of high-quality, technologically advanced flexible printed circuit and value-added component assembly solutions to the electronics industry. They are one of a limited number of manufacturers that provides a seamless, integrated end-to-end flexible printed circuit solution for their customers, ranging from design and application engineering, prototyping and high-volume manufacturing to turnkey component assembly and testing. MFLX targets their solutions within the electronics market and, in particular, focuses on applications where flexible printed circuits facilitate human interaction with an electronic device and are the enabling technology in achieving a desired size, shape, weight or functionality of the device. Current applications for MFLX products include mobile phones and smart mobile devices, portable bar code scanners, personal digital assistants, power supplies and consumable medical sensors. The company expects that the usage of flexible printed circuits and component assemblies will continue to increase in their target markets.
MFLX orders have been skyrocketing and their backlog is so high that they have elected to expanding capacity by building a factory in near Suzhou, China which will allow M-Flex to expand its output roughly 27%. Four plants and a prestigious list of satisfied customers straddle the North American, South American, Asian, and European continents. My friend Smelles went to Taiwan. Actually what happened was he missed his plane, so he had to hide 24 hours in Spanky’s apartment until the next plane left Kennedy for Taiwan. Now he speaks Chinese but we still call him Smelles.
The flexible printed circuits that MFLX manufactures are designed specifically for each application, frequently requiring significant joint design activities with the customer at the start of a project. Multi-Fineline has developed design methodologies that solve difficult interconnection problems and save customers time and money. Flexible printed circuits can be enhanced by attaching electronic components, such as connectors, switches, resistors, capacitors, light emitting devices, integrated circuits, cameras and optical sensors, to the circuit.
M-Flex’s circuit board is superior to those made by its competition because MFLX makes them detailed to their customer’s requirements. That way, the customer can design their own product in the way it suits their customers rather than in a way that suits their suppliers. This translates to more revenue for the customer, who then becomes embedded with M-Flex.
So in a way, M-Flex is doing the front end design work for their own customers. What makes the flexible circuit board so cool is that it isn’t really a board, because you can bend it. This is why Motorola could actually make such a thin cell phone, because the circuit “boards” actually wrap around other components of the phone and include other components of the phone on the board. M-Flex is the leader in the US in these commercial applications.
Ever go to a Little League game? You always see all the dads hunched over the fence scrolling their Blackberry wheels pretending that they are watching their kid play? Actually they don’t want to really watch their kid, because their kid usually strikes out or makes an error. The reason for that is that their kid has no athletic ability because of the inferior genes passed on by his father, or even if he did have athletic ability passed on by his trophy wife mom, he can’t apply it because his dad is too busy looking at his Blackberry to be playing catch with his kid. More and more dads are using Blackberry’s and more or more kids are going to suck at baseball as a result. However the good news is that with the use of more Blackberry’s, you’ll see more and more MFLX circuits sold.
From grocery stores to manufacturing plants and shipping companies, everyone needs to track their goods. Bar Coding provides them with the solution they need. M-FLEX supplies flex to keep Bar Coding equipment top of the line. So now we know that people buy 0.6% more Yodels than Ho-Ho’s and that they will all want to put a RAZR phone on their belt loop.
Because MFLX makes the circuits in China, they can make the boards even cheaper than they can be made in an unheated storefront in Connecticut. MFLX’s larger strategy is to find components it can add to its flex circuits, which will in turn add value to its core product. The more junk that goes into cellphones (e.g. Ipod functionality) the more MFLX circuits will be sold.
A good story, yes, but how does it translate to an increase in stock price. A good place to start this analysis is with earnings earnings earnings.
On Feb 2, MFLX reported that net sales for the fiscal first quarter ended December 31, 2005, increased by 66 percent to $139.7 million from $84.4 million for the first quarter of fiscal 2005. Net income for the fiscal first quarter of 2006 increased 82 percent to $17.3 million, or $0.69 per diluted share, compared to $9.5 million, or $0.38 per diluted share, for the same period in fiscal 2005.
The company's continued strong performance during the first quarter of fiscal 2006 resulted from significant growth in revenues from the wireless telecommunications sector of its business, driven by an exceptionally strong increase in sales to its largest customer (Motorola) , which increased approximately 82.7 percent compared to the same period in fiscal 2005. By the way, Motorola has been kicking butt lately.
The company itself expects its net sales for the second quarter ending March 31, 2006, to range between $120 million and $132 million and net income for the same period of between $11.0 million and $13.0 million. Representing an anticipated increase in net sales of up to 71 percent and net income of up to 65 percent over the second quarter of fiscal 2005.
M-Flex, given its low-cost manufacturing capacity in China, its positive free cash flow and its debt-free balance sheet, is positioned to grow earnings faster than its peers. M-Flex also is building relationships with other handset customers, which are expected to make up 10% of total revenue over the next quarter or two.
ANAL-ysts expect MFLX to sell $558 million in fiscal 2006 generating $2.28/share in earnings and then grow to $689 million in 2007 with earnings of $2.64. Ooops…I laughed so hard I spit out coffee and it ran down my nose. $$$MR. MARKET$$$ sees 2006 revenue of $695 million with earnings of $2.75 per share. In the year 2007, MFLX will nail down $834 million in revenue and earnings of $3.30 per share. Take the $2.75 for 2006 and use today’s PE of 31, you get $85.25 per share, well past my sell target. By the way, MFLX has smashed the ANAL-ysts numbers in the last 4 quarters and they have increased their guidance in the last 30 days.
Supporting these earnings projections are the solid financial performance of the company. ROE is 24.8% vs. 14% for the industry. Return on assets (remember their asset base will grow soon with the new factory) is 17.5% vs. the industry average of only 5%. TTM Sales growth is 45% vs. industry growth of 6%. Earnings go along with these figures. Operating margin is 15% vs. 7% for the industry. Clearly MFLX has some pricing power. MFLX has no long term debt.
Certainly these numbers justify the higher PE of this stock. The percent of stock owned by institutions is only 40%. Lots of muscle left to move this stock price. Here’s a comment from management:
"The overall strength of the wireless sector and market demand for the products of our largest customer were the major contributors to our stronger than expected growth during the quarter. Two other leading handset manufacturers have progressed beyond prototyping and pre-production and are now in the early stages of volume production. These new handset customers are expected to ramp up gradually during the next six months. One of these customers for whom we have added new programs over the past several months is expected to reach nearly 10 percent of our quarterly revenue in the second half of calendar 2006.”
Somebody get this guy a RAZR phone so $$$MR. MARKET$$$ can call him and teach him the fine art of braggadocio. If I had the quarter that this guy had, I’d be running around nude with my hair on fire, not mumbling such gibberish. Anyway, when you cut the deck in Atlantic City, remember it’s thin to win.
I am HUGE!
$$$MR. MARKET$$$
Did you like this write up? If so, send me an email, I love to hear your feedback. Better yet, forward this on to 3 of your friends.
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