Alpha and Omega Semiconductor

Alpha and Omega Semiconductor Ltd. ( AOSL - Snapshot Report ) has posted an average earnings surprise of 82% over the past four quarters, most recently delivering a 73.3% beat in the fourth quarter of 2012. This manufacturer of power semiconductor products moved to a Zacks #1 Rank (Strong Buy) status on September 24.

However, the stock remains significantly undervalued, with a forward price-to-earnings (P/E) multiple of just 8.59 and a low price-to-book (P/B) multiple of 0.79.

Earnings Surge in Q4

Alpha and Omega Semiconductor reported strong fourth quarter 2012 results on August 14 with earnings at 26 cents per share. The better-than-expected earnings were primarily driven by strong revenue growth and margin expansion.

Revenue jumped 12.4% from last year to $94.3 million. Gross margin expanded 350 basis points, driven by productivity improvements. Although operating expenses soared 11.2%, operating profit surged 106.3% based on a higher revenue base.

The strong fourth quarter encouraged Alpha and Omega Semiconductor to provide a positive guidance for the first quarter of 2013. The company forecasts revenue between $92 million and $96 million, while non-GAAP net income is expected to be 8% – 9% of revenue for the upcoming quarter.

Earnings Momentum on the Rise

Over the last 60 days, the Zacks Consensus Estimate for AOSL’s fiscal 2013 has risen 3% to $1.03. This reflects 102% earnings growth from 51 cents in the year-ago period.

Valuation Continues to Impress

In addition to low P/E and P/B multiples, the stock looks attractive given a price-to-sales (P/S) multiple of just 0.65. A P/E below 15.0, a P/S ratio less than 1.0 and a P/B ratio under 3.0 generally suggest a value stock. Moreover, Alpha and Omega’s PEG ratio of just 0.43 indicates that the stock is reasonably valued given the expected growth of 20%.

Historically, declining earnings have significantly impacted prices. The uptrend in 2013 and 2014 earnings estimates should encourage investors as the stock is likely to follow the trend.

Sunnyvale, California-based Alpha and Omega Semiconductor manufactures power semiconductor products that transfer, manage and switch electricity to deliver the appropriate amount of voltage to a broad range of electronic systems (TVs, computers, smartphones) and also protect electronic systems from damage resulting from excessive or inadvertent electrical charges.

Alpha and Omega Semiconductor is a leading provider of more than 1000 power semiconductor products. The company introduced more than 240 new products in fiscal 2012. AOSL has a strong client base that includes Dell Inc. (DELL), Hewlett-Packard Company (HPQ), LG Electronics, Inc. and Samsung Group.

Want More of Our Best Recommendations?

Zacks' Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Then each week he hand-selects the most compelling trades and serves them up to you in a new program called Zacks Confidential.

Learn More>>