Stock price when the opinion was issued
SFTC has been relatively flat over the last year and part fo the reason could be attributed to lower hardware demand that is forecasted to rebound in 2024. Despite declining revenues in 2023, SMTC's gross profit margins have improved which is a good sign. Growth forecast for the next two years for revenue is quite marginal for revenue over the next two years while EPS growth is similar. We don't see SFTC having a huge growth profile going forward but the stock could still perform well in 2024. We think there are other more intriguing options.
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The company is striving to bring AI integration to customers thru the Copilot platform of Microsoft across multiple platforms including AWS and Google Cloud. Recently reported cash from operations was $100 million, allowing cash reserves to grow while debt is retired and shares bought back. It trades at 17x earnings and supports a ROE over 90%. Its modest dividend is backed by a payout ratio under 50% of cash flow. We recommend setting a stop-loss at $14, looking to achieve $22 — upside potential of 22%. Yield 1.9%
(Analysts’ price target is $22.08)