Jun
22
Profile of a Former “Rule #1″ Company: NVE Corporation
Company Issued Business Summary:
NVE Corporation (NVE) develops and sells devices that use spintronics, a nanotechnology. The Company manufactures spintronic products, including sensors and couplers that are used to acquire and transmit data. NVE has also licensed its spintronic magnetoresistive random access memory technology (MRAM). In the Company’s products, the spintronic elements are connected to integrated circuitry. The Company’s designs are based on either giant magnetoresistance (GMR) or tunneling magnetoresistance.
Wonderful Business provided coverage on NVE Corp. from February 22, 2011 until our May 23rd (Issue 44) edition after the company had filed its annuals and it was discovered that their cash flow had only grown 2.8%. What was a shame is that due to what had been strong fundamentals and an awesome margin of safety (around 60%), we had NVEC as a top-ranked wonderful business and were surprised to find that they had cash generating difficulties. But that happens, and per our policy, when a business has lost its “Big Five” moat numbers, we see that as a red flag and move on.
But does one bad statistical year mean that NVE Corp. is no longer a buy? Not necessarily. NVEC made its run between August 31-January 14, gaining 67% in share price before cooling off and becoming stagnant over the past five months. But it appears that it still has room to grow, provided that it can rebound from its poor FY 2011. And the problem wasn’t relegated to cash; the company also saw earnings growth slow to 12%, sales 11%, and gross profit fall to 8%, so a definitive bounce back is in order if investors want to see that double in share price that its statistical intrinsic value suggests.
There are only two analysts that cover NVEC, and both believe the stock is headed upwards but differ in their opinion of how much. One analysts sees a 13% increase a year from now, another believes the stock will jump 31%. The company appears to be solid and undervalued, but strict Rule #1 investors may wish to pursue other options where historical record is more consistent.