Tickle Me $SIMO - Mega Memory Upside (v2)

SIMO starts with S and S looks like $. Coincidence? Not in this market! - Gandhi, 1901 Now with catalysts & 3 charts! KEY POINTS SIMO is THE BEST way to play memory Under the radar stock in the memory supply chain, a derivative play with massive upside when cycles exit troughs (*we are here) MU makes up 24% of revenues, followed by other major memory & semi companies; recovery = SIMO alchemy Consensus Price Target: $98, but read thesis, these are significantly low Cheap Volatility = Blue Origin Blastoff Returns Company Description (ELI50 for Boomers) Silicon Motion is the leading maker of controllers in the memory, storage markets, and specialty RF. Their chips power data centers, mobile devices, SSDs, autos, and multimedia hardware (video walls, tablet tech, medical equipment, etc). Their customers are key members of the supply chain (i.e. Micron, Samsung, SK Hynix, etc) and supply some web service providers directly (I.e. Alibaba). All of their customers are ramping production, further accelerating demand for SIMO’s products. Bull/Only Thesis This is a derivative play on memory (Tip: supply chain stocks always have more leverage) and a superior play for cyclical upturns (we are now entering). What do I mean by derivative play? Imagine Micron is a SpaceX rocket taking off. Close your eyes and feel the experience of starting the boosters, lifting off, and gradually accelerating to space. Now imagine SIMO is a monkey strapped into a shopping cart connected to that rocket by a long chain that suddenly goes from 0 to 99,999mph. Get it? Got it? Good. More importantly/hilariously, management has continued to keep racking up sales from strong demand all year which has proved resilient despite memory market softness and all while gaining new production capacity. Somehow, analyst estimates reflect neither of these factors. Mgmt guided $1.5B in backlog being pushed into 2022, yet according to analysts $1.5B in future sales is only worth $1B in sales on their estimates. Also worth considering, if this year was a FUD cyclical trough, and next year is a reacceleration period into a decade of increasing memory demand, then 2021’s $1B in sales probably wasn't "peak", was it? I'm no rocket scientist, but I'd say no. In other words, EPS estimates and valuation expansion are heading SIGNIFICANTLY higher. Luckily, Needham modeled this for us: https://preview.redd.it/bo05eem52e181.png?width=437&format=png&auto=webp&s=07f1607d0a927283069d1c24f6a53299596fca75 Bottom line: SIMO is a monkey in a shopping cart about to be jerked up significantly by the recovering memory cycle during another decade of secular, exponential growth in memory needs from datacenters, EVs, consumer tech, mobile, and literally every facet of human life. This is a real stock that attracts real hedge funds. Get in early or forever hold your peace. Valuation & Financials Current Fwd P/E: 11.6 Past cycles have reached Fwd P/Es of 15-20+, insinuating 50-100% upside from current levels? Wrong. Every cycle works like this: Cycle in Trough? EPS gets cut. Cycle reaccelerates? Analysts start falling over themselves to raise estimates. You get multiple expansion on top of higher estimates. (See CHART 1 & 2). Did I mention SIMO never actually had estimates cut, unlike its customers? Sales Growth: 70% ’21, 15% ’22? No Estimates currently model for only $1.06B in 2022, a 15% increase over 2021. On their last call, management stated a $1.5B backlog while also successfully securing more foundry space at TSMC. SIMO has pricing power and can continue to pass on any costs to keep margins fat as they have for years. EPS Growth ’21: On track for 87% This is despite constraints in their memory & storage end market. As these manufacturing constraints are easing, SIMO’s sales & EPS should finally rocket higher into 2022 (more chips produced = more revenue for SIMO). EPS Growth ’22: Currently 19% These are flat out wrong, as analysts have not revised models to account for the $1.5B sales backlog. With memory now exiting a cyclical trough, these figures will be revised higher, especially as analysts start to chase memory stock momentum. EV/EBITDA ‘22: 7.37 Enterprise Value (backs out cash) presents an even better picture than Fwd P/E. Indicated Dividend: 2.8% Well above the S&P 500 (1.2%) and the 10yr treasury after a recent 40% hike, perfectly price for retiree boomer WSBers, too. Technical Setup SIMO has been consolidating along a rising 150DMA since October. The 20DMA converged with the 150DMA, and is starting to liftoff. If you exclude the Q3 failed breakout thanks to the blink-and-you-missed-it “Q4 cyclical downturn”, SIMO has basically been a steady climber all of 2021. Relative strength has been rising recently as funds inevitably start their re-entry. Funds don’t appreciate the power and swiftness of today’s markets, and will chase this as it starts shooting up. Upcoming Catalysts SIMO consistently goes HAM in Decembers, so back up the trucks ahead of the Santa Claus rally. Nov 30 - SIMO @ Wells Fargo 5th Annual TMT Summit 2021 (SIMO & customer presentations) Dec 1 - Nasdaq Investor Conference 2021 (customer presentations; memory stock catalyst) Dec 2 - SIMO @ Credit Suisse 25th Annual TMT Conference 2021 (SIMO & customer presentations) Dec 6-8 - UBS Global TMT Conf (customer presentations; memory stock catalyst) Dec 7 - Barclays Global TMT Conference (customer presentations; memory stock catalyst) Dec 9 - Deutsche Bank access AutoTech Conference 2021 (customer presentations; memory stock catalyst) Dec 20 - MU Earnings Report (customer report; memory stock catalyst) How to Play Very Risk Averse: March 22 80 Calls. Current Bid/Ask 2.15/3.00, presenting 5-6x returns on a rebound to $80 and 25% breakout to $100. Quasi-risk Averse: Jan 22 80 calls. Current Bid/Ask 1.2/1.4, presenting 14-16.5x returns on a rebound to $80 and 25% breakout to $100. Pump It Up: Dec 75 calls. Current Bid/Ask 0.75/1.00, presenting 15-20x returns if strong flows cause a breakout to $90 as funds return to memory stocks after a 2-3mo distribution period and ahead of MU earnings confirming that everything is blasting off. WSB Delight: Dec 80 calls. Current Bid/Ask 0.3/0.55, presenting 18-33x returns if the same scenario plays out. A whole lotta zeros. I currently own Dec 75 calls. Appendix Chart 1: Price, Fwd P/E, and Fwd EPS Estimates (breaking out given secular memory trends) ​ I work for no one and pay for my own BBerg terminal, so I must be an ace. Rising EPS est reflects transition to secular growth vs prior cyclical pattern, and Fwd P/E pricing is pre-cyclical upturn, adding dual upside drivers. Chart 2: EPS Hike Cycle Let's be honest, this is all you're looking at anyway Chart 3: Stock Volatility 10D Rolling volatility approaching 6mo lows, suggesting cheap option pricing ahead of catalyst rich month