Thursday, 10 March 2011 20:09

Finding Attractively Valued Large-Cap Technology Companies

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When we launched our professional-grade global stock screener into free beta, we created a simple screen to identify attractively valued technology companies that we could compare to other well known tech companies.

Specifically, we were looking for companies that met the following criteria:








Limit scope to tech sector

Market Capitalization



Remove micro-cap companies

Total Revenue(A) / Employees



Remove low-margin services and manufacturing companies

Net Income(I)



Limit to profitable companies




Remove companies trading at high multiples

Total Debt(I)



Very conservative debt threshold

Then, we sorted the results by descending market capitalization so we would see the large caps at the top of the list. As of March 2, 2011, this screen lists the following companies at the top of the list (companies listed according to their primary exchange but ticker links correspond to U.S. stock pages):


Microsoft Corporation


Intel Corporation


Research In Motion Limited


Applied Materials, Inc.


ASML Holding N.V.


MediaTek Inc.


Marvell Technology Group Ltd.

Looking at their valuation multiples, it is worth noting that Intel (INTC) is trading at an EV/EBITDA ratio of 4.9. If we add the TTM/TTM revenue growth rate column to the analysis, it is worth noting that Intel posted a fairly strong 24.2% YoY revenue growth rate. While the semiconductor industry is cyclical, and Intel has been unable to translate its strong position in the PC/Server market to smartphones and tables/mobile devices, the low market valuation still is somewhat surprising.

RIMM also seems to be trading at a 6.3x EV/EBITDA ratio despite posting 28.6% TTM/TTM revenue growth, likely as a result of its recent market share losses in smartphones to Apple (AAPL) and Google (GOOG) Android devices. Given the rapid growth of the mobile market expected over the next few years, one must question whether the rising tide will allow RIMM to continue to sell more devices per year even as its market share is eroded by the proliferation of smartphones from other vendors.

For those who are curious, ASML Holding (ASML), MediaTek, and Marvell (MRVL) are all companies in the semiconductor ecosystem that are trading at higher EV/EBITDA multiples than Intel. ASML is growing extremely rapidly, with 182% TTM/TTM revenue growth. Given its rapid growth rate, its 8.8x EV/EBITDA ratio seems relatively low, even when considering the cyclicality of the semiconductor market.

Now, let’s compare the valuation metrics of these companies to other well-known large-caps: Google (GOOG), Apple (AAPL), and Yahoo (YHOO). All three of those companies trade at EV/EBITDA ratios of over 13x, or more than twice that of MSFTINTC, and RIMM. At first glance, Yahoo’s valuation is puzzling; despite posting negative TTM/TTM revenue growth, its EV/EBITDA is roughly twice that of MSFT—which actually powers their search engine and also has a large (albeit money losing) online services division. Part of the answer comes from adding Long Term Investments(I) to our table. Enterprise Value does not take into account Yahoo’s minority investments in AliBaba and other investments that comprise $4.4B of its assets—over 20% of its total market cap. Let’s create a custom formula:

[Current Enterprise Value (EV) - Long Term Investments(I)] / EBITDA(A)

This attempts to back Yahoo’s long term investments out of its enterprise value and compare that to its EBITDA. Even this ratio, for Yahoo, is 9.7x. Despite its shrinking revenue, Yahoo is being valued more highly than Microsoft relative to their financials.

As illustrated above, is a powerful tool for screening and analyzing domestic and global companies. Until April 1st, we are in beta and letting people use our tool for free. We hope you will join us and let us know what you think.

Disclosure: I am long MSFTGOOG.


Last modified on Thursday, 10 March 2011 20:15
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