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05-21-2007 SMTX - SMTC Corp

CURRENT PRICE: $3.26

TYPE OF PLAY: VALUE/FUNDAMENTAL ANALYSIS/TURNAROUND

* 8 consecutive profitable quarters including 16% growth in first quarter on revenue of $69.5 million.

* .19 EPS (.09 after tax gain removed) for the first quarter with a solid outlook for management for the second half of the year (typically the strongest quarters). This gives them a TRAILING P/E ratio of under 10 even after one time gains are removed.

* Cash flow positive and paying down debt (paid down ~10% of the balance this quarter alone). They are also in advanced talks to restructure debt to further decrease interest

* New manufacturing plant in Mexico will be operational later this year.[From the conference call]

*Price/Sales ratio is ~ 0.17, showing a severe discount to other industry peers such as Flextronics (NASDAQ: FLEX)

SMTX is a leading electronics manufacturing services provider with operations in the United States, Canada, Mexico, and China. The company supports the needs of a diversified OEM customer base within the computer, networking, industrial, and communications markets. They offer a full range of value-added services including product design, procurement, prototyping, assembly, interconnect, test, final system build, comprehensive web-based supply chain management, packaging, global distribution and after-sales support. .

The company has proven over the past 2 years that they can sustain profitability and are moving toward reducing debt. A senior staff member has specifically been added to concentrate on reducing the number of days for which their product is in inventory. Although not readily apparent in the raw data, gross margins also remain quite strong. This past quarter they took an inventory provision charge that skewed the gross margin number. Note that this was well clarified in the conference call. With two of their typically strongest quarters just ahead, we believe the current valuation represents a significant discount given the strength of sales and current mergers and acquisitions activity within this market.

LINKS FOR FURTHER READING:
SMTX homepage
SEC filings for SMTX
General SMTX statistics