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Silicon Motion Looks Promising: Should You Buy the Stock?

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A successful investor understands the importance of adding well-performing stocks in the portfolio at the right time. Notably, indicators of a stock’s bullish run include a rise in share price and strong fundamentals.

Silicon Motion Technology Corporation (SIMO - Free Report) is one such technology stock that has been on healthy growth trajectory, of late. The company’s shares have returned 28.6% on a year-to-date basis, substantially outperforming the industry’s rally of 18%.

Let’s delve deeper and analyze the factors aiding the performance.

Positive Earnings Surprise History

Silicon Motion has an impressive earnings surprise history. The company outpaced the Zacks Consensus Estimate in the trailing four quarters, with a positive average earnings surprise of 13.4%.

Further, it has a long-term expected EPS growth rate of 5%.

Upward Estimate Revisions

In the last 60 days, the Zacks Consensus Estimate for Silicon Motion’s fiscal 2019 witnessed upward revisions. The Zacks Consensus Estimate for fiscal 2019 is pegged at $3.08 per share compared with $2.92 per share projected 60 days ago.

Outlook Impressive

For second-quarter 2019, Silicon Motion anticipates non-GAAP revenues to be in the range of $98 million to $107 million (indicating sequential growth of 10-20%). The Zacks Consensus Estimate is currently pegged at $103.64 million.

Other Driving Factors

Silicon Motion outshines peers in providing resources for research and development. It develops affordable versions of TLC NAND flash and high-density 3D NAND. Furthermore, the company believes a majority of its client SSD controller will be utilized for managing 3D flash, going forward. The company has commenced sales of 3D SSD controllers to flash partners and anticipates this controller to be a significant growth driver for SSD controller over the next year, as NAND Flash partners’ 3D capacity expands. Moreover, it initiated mass production of PCIe NVMe client SSD controller for flash partners. We believe accelerated product sales — along with favorable industry trends — signal bright prospects forward for Silicon Motion. On the back of pipeline expansion, Silicon Motion expects SSD controller sales to “grow sharply in the second quarter."

The company recently divested mobile communications business to focus on SSD controllers, which in turn will favor growth prospects. As the company’s Open-Channel NVMe SSD controller enters into production, Client SSD Controller sales are anticipated to increase.

Further, the company’s efforts to reward shareholders through share buybacks and dividend payments hold promise.

We also believe that an expanding product portfolio is a key catalyst.

Bottom Line

Looking at these positives, we believe that Silicon Motion is one technology stock that deserves a place in investors’ portfolio.

Consequently, investing in this stock can yield returns in the short term.

Zacks Rank & Other Key Picks

Silicon Motion sporting a Zacks Rank #1 (Strong Buy).

Some other top-ranked stocks in the broader technology sector are Match Group, Inc. (MTCH - Free Report) , Universal Display Corporation (OLED - Free Report) and Autohome Inc. (ATHM - Free Report) , each flaunting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Match Group, Universal Display and Autohome have a long-term earnings growth rate of 15.2%, 30% and 20.9%, respectively.

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