Summary
- AVX is an American manufacturer of electronic components headquartered in Fountain Inn, South Carolina.
- It had a market capitalization of $2.5 billion at the time of this writing, and an attractive dividend yield of 3.15%.
- AVX has a comfortable dividend payout ratio of 28.70%. It also has an attractive balance sheet, with $790 million in cash and no debt.
- In this post we provide a simulation-based (sim-based) valuation of AVX.
- Our sim-based analysis suggests that the fair price-to-earnings ratio should be 12.41, leading to a current fair value of $19.71.
- AVX currently trades at $14.52, so it appears to be undervalued, with a potential upside of 35.74%.
AVX Corporation (AVX)
AVX is an American manufacturer of electronic components headquartered in Fountain Inn, South Carolina. It is in fact a subsidiary of Kyocera Corporation, which is a Japanese multinational ceramics and electronics manufacturer headquartered in Kyoto, Japan. AVX had a market capitalization of $2.5 billion at the time of this writing, and an attractive dividend yield of 3.15%.
Estimating a fair value for the stock
In this post we provide a simulation-based (sim-based) valuation () of AVX.
At the time of this writing the company had a trailing twelve months price-to-earnings ratio of 9.14. The growth in earnings for the past 5 years has been 16.51%. To be conservative, we will consider the lower industry average projected earnings growth of 10.81% to be the sim-based earnings growth rate for the next 5 years.
Is the price-to-earnings ratio of 9.14 suggestive of undervaluation? As you can see in the table below, the answer to this question seems to be “yes”. Since our sim-based analysis uses a S&P 500 return as a basis, the fair price-to-earnings ratio should be 12.41, leading to a current fair value of $19.71. AVX currently trades at $14.52, so it appears to be undervalued, with a potential upside of 35.74%.
What if future earnings growth is more in line with the past 5 years?
As noted above, we used as sim-based earnings growth rate for the next 5 years the industry average projected earnings growth of 10.81%.
What would happen if we used the growth in earnings for the past 5 years of 16.51%?
In that case, as shown in the table below, the fair price-to-earnings ratio should be 16.51, leading to a current fair value of $26.22. The potential upside then becomes a very attractive 80.58%.
Other pluses and minuses
AVX pays an attractive dividend of 3.15%, with a comfortable payout ratio of 28.70%. It has a non-leveraged balance sheet, with $790 million in cash and no debt.
On the other hand, it missed estimates in its last earnings report in late July. And, like many other companies in the industry, is predicting a significant drop in earnings for the next two quarters.
Disclosure
The author owns AVX shares at the time of this writing.
