Atheros to Grow in 2010: Under the Radar
SANTA CLARA, Calif. (TheStreet) -- Atheros Communications (ATHR) shares have doubled in the past year as wireless technology creeps into every electronic device on the planet. The company beat earnings estimates for the fourth quarter, and this year is expected to be even better than 2009.
The Santa Clara, California-based chipmaker boosted revenue for each quarter of 2009. The company's sales rose to $185.7 million last quarter, beating analysts' estimates for $174.7 million. Earnings per share of 62 cents also topped analyst expectations of 54 cents.
As revenue rises, the company is better able to cover fixed costs and expenses for research and development, which have been ramping up. Added revenue has made Atheros much more profitable. Sales will increase another 55% to $841.6 million in 2010 and earnings will increase 49%, analysts say.
One of the biggest knocks on high-growth companies such as Atheros is that they are usually risky because of heavy debt. That's not the case for Atheros.
Atheros, founded 11 years ago, weathered the dot-com bust and the current recession, and it carries no long-term debt. A lack of leverage has made some metrics, such as return on equity, look pedestrian since the company doesn't get the benefit from borrowing to boost returns, but it makes for a far more stable capital structure.
Atheros has financed its activities with the use of free cash flow and equity. Cash flow has been plentiful enough for the company to build a cash hoard of over $402 million, up from $293.7 million at the end of 2008. These huge reserves should allow the company to expand aggressively when prudent and maintain its operations if the economy suffers another setback.
At a forward price-to-earnings ratio of just 15.4, Atheros is extremely attractive. Financial strength isn't too common among growth-oriented tech stocks, so when you find one, grab it.
-- Reported by David MacDougall in Boston.
Prior to joining TheStreet.com Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.