Valuation, Not Opportunity, Remains The Main Challenge With Silicon Labs

In terms of operating performance, I don’t have a lot to criticize with Silicon Labs (SLAB), as it once again did quite well in this quarter on a relative basis. Likewise, I don’t have much to quibble with or complain about in terms of the opportunity set in front of the company (other than thinking they need better MCU IP). The issue remains principally valuation for me, and the shares have lagged the SOX index by about 15% since my last update on the company.

With that underperformance, the valuation is a little more interesting. Management really needs to get the operating margins up to 30% for the discounted cash flow side to work, though I readily admit growth semiconductor stocks can trade well above DCF-based fair value for long stretches. I still am not crazy about the prospective value here, but I do still see some, and there aren’t as many quality growth stories in semiconductors as I’d like.

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Valuation, Not Opportunity, Remains The Main Challenge With Silicon Labs