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TheStreet Open House

Twitter vs. Kulicke and Soffa

NEW YORK ( TheStreet) -- All of the market's focus Thursday was no doubt squarely on the much anticipated Twitter (TWTR) IPO, which was one for the ages. I am still shaking my head over the $24.5 billion market cap that Twitter has graciously been awarded by the markets in its very first day of trading.

However, I had my focus on much more mundane things, in the neverending pursuit of value opportunities. That was manifested Thursday via Kulicke and Soffa (KLIC), an underfollowed, and little known $900 million market cap company that took it on the chin yesterday after a disappointing fourth-quarter earnings report.

Kulicke and Soffa, which may sound like an accounting or law firm, but actually sells tools used in the assembly of semiconductor equipment, has shown up on my radar a few times over the past couple of years, primarily because it has traded at a relatively low multiple of price-to-net-current assets (current assets less total liabilities). Revenue has been declining in recent quarters, but that is not unexpected for this cyclical company, which has also been altering its product mix.

Shares fell 9% Thursday after the company reported revenue of $173.6 million and earnings per share of 39 cents, both of which were below the respective $183.3 million and 41 cent consensus estimates. But that's what happens when you don't meet expectations, even in cases like this, where there are just three analysts covering the company. Such sparse coverage, in my view, also increases the likelihood of surprises, either positive or negative.

Despite the earnings and revenue shortfall, the balance sheet remains very strong. The company ended its fiscal year with $525 million, or nearly $7 per share in cash and short-term investments and no debt, yet closed Thursday at $11.77.

Furthermore, with net current assets of $608 million, and a market cap of $886 million, shares trade at just 1.46 times net current asset value.

Kulicke and Soffa is what I describe as a "double net," or company that trades at between one and two times net current asset value, which can be an extremely cheap valuation, and has me very interested in this company. It also looks enticing on a price/earnings basis, trading at just more than nine times trailing 12-month earnings. It is also trading at just under nine times 2014 consensus estimates. Back out all of the cash, and it trades at just 3.5 times 2014 consensus estimates.

It will be interesting to see where shares of the much heralded, must-own Twitter, and the little known Kulicke and Soffa will be trading one year from now. Going out on a limb, I'm betting that the cheap, little, underfollowed tech-related company will outperform the social media giant during that period.

Expectations for Twitter are extremely high, and there is little room for disappointment, while expectations are quite low for Kulicke and Soffa. Stay tuned.

KLIC Chart KLIC data by YCharts

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

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. 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.

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