Classic value

20% FCF yield, massive share repurchases, obsolescence risk overblown. Buybacks plus awareness create +100% upside potential.

Cash flow machine trading at an absurdly low valuation

While the market is worried about obsolescence risk, I believe the runway is much larger than many would like to admit.

Even if technology shifts trigger revenue decline 8+ years out in the current business, the most profitable business segment is still expected to grow for another 10+ years and have a very long tail of economic viability.

The market is giving zero credit for their next generation product line, where they are already winning pre-revenue contracts and have generated interest from 50+ potential customers.

Management believes this new business will generate $1 billion in revenue by 2030. If this proves accurate, the value here will likely dwarf the current base business.

In all, this looks to be an anomalous situation where a high quality business is trading at a 20% free cash flow yield. Over the next few years, I am expecting enormous buybacks that could force the share price closer to fair value.

Growing awareness of their core product’s longer-term viability will also shift investor sentiment. The “moonshot” upside will occur if next generation products get substantial traction.

A valuation similar to a peer group would create +100% upside potential.