OmniVision Technologies a High-Def Growth Play

Friday, 03 Jun 2011 10:38 AM

By David Frazier

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OmniVision Technologies (OVTI) designs, develops, and markets image-sensing devices that electronically capture and convert images for use in consumer electronic products, such as digital cameras, mobile phones, notebook computers, and webcams. In addition, the company’s image-sensing devices are used in advanced automotive imaging applications, such as forward-looking and parking assistance systems and rear-view and trajectory-based lane departure warning systems.

OmniVision’s devices enable camera manufacturers to build high-quality camera products that are smaller, less complex, more reliable, more cost-effective, and more power-efficient than cameras that use traditional image sensing devices.

On May 18, the company announced that it is now offering a new image sensor that provides full HD 1080p video capture at 30 frames per second and has a slimmer profile and better image quality than earlier versions of its image sensors. According to published reports, that sensor would be a good fit for Apple’s next-generation iPod and iPad devices because it would enable those devices to provide a five-megapixel photo capture and 1080p video recording. In contrast, current versions of the iPad and iPod provide only 0.7-megapixel photos.

There’s no assurance that Apple will use OmniVision’s image sensors in its next-generation iPod or iPad, which industry experts expect to be released before the end of this year. But my research indicates that speculating on such a possibility would be well worth the risk.

That’s because even if the company’s image sensors are not chosen by Apple, OmniVision expects to continue to grow its revenues and earnings at a fast rate. Specifically, the company stated on May 26 that it expects its earnings for the quarter ending July 1, 2011 to more than double compared to the same quarter a year ago, on a 37 percent to 48 percent increase in its revenues.

A bargain buy

Although OmniVision has consistently grown its revenues and earnings at a fast pace since August 2010, the company’s stock appears to be trading at a bargain price. Specifically, OVTI recently traded with a forward P/E ratio of only 11.5 even though Wall Street analysts expect the company to grow its earnings per share at an average annual rate of 15 percent over the next three years.

Meanwhile, OmniVision is very strong financially, with its cash alone covering all of the company’s financial obligations as of the quarter ended Jan. 1, 2011.

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