Plantronics Still Shooting for the Moon

The first words uttered from the moon by astronaut Neil Armstrong -- "That's one small step for man, one giant leap for mankind" -- were carried through a Plantronics (PLT - commentary - Cramer's Take) headset.

Founded in the 1960s, Plantronics now designs and manufactures lightweight and Bluetooth headsets and other accessories used by consumers and businesses around the world. It stands to greatly benefit from the wave of state laws banning the use of handheld phones while driving.

Currently trading in the $12.40 range, shares are down 55% from their 52-week high and 51% year to date. Second-quarter results (September) were not earth-shattering, but decent. Sales rose 4.2% to $216.9 million, while net income jumped 6.8% to $17.6 million. The company's profit margins are solid: 8.5% on a trailing-twelve-month basis, 8.1% for the second quarter, and averaging 8.3% for the past three fiscal years. Margins were even higher in past years, but I won't argue with 8 percent.

The balance sheet is also strong. As of Sept. 30, 2008, Plantronics had $200 million in cash, or $4.10 per share. The company also has another $24.8 million in long-term investments on the books, primarily auction rate securities, which had not incurred any material realized gains during the six months ended Sept. 30. (Yes, I cringe too at the sound of the words "auction rate securities," but it looks like the bleeding has stopped and the value is there.)

All together, that's $4.60 in cash and investments per share, which is a net figure since Plantronics has no debt. With a current ratio of 4.1 and a quick ratio of 2.8, Plantronics has ample liquidity to hold strong in this difficult economic environment.

The company currently trades at just 0.97 times book value and 1.46 times tangible book value. For the past three years, Plantronics' average price-to-sales ratio has been 1.57; it currently trades at just 0.69 times sales. Plantronics also yields 1.6% -- not incredible, but shareholders can still earn a money-market rate while they wait. Last month, the company announced another 1 million share buyback on the heels of another 1 million share buyback that had just been completed.

Consensus estimates are calling for earnings of $1.41 for the year ending March 2010 on revenues of $830 million. At 12 times earnings and 1 times sales, Plantronics would be worth $17, 36% above current levels.

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Know What You Own: Plantronics operates in the processing systems and products sector; other stocks in this field that investors may be interested in are Logitech (LOGI - commentary - Cramer's Take), Motorola (MOT - commentary - Cramer's Take), Polycom (PLCM - commentary - Cramer's Take), Tekelec (TKLC - commentary - Cramer's Take), SeaChange International (SEAC - commentary - Cramer's Take) and Nortel Networks (NT - commentary - Cramer's Take).

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At the time of publication, Heller had no positions in the stocks mentioned.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, a fee-only financial planning he recently launched. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.