A Financial Analysis of AU Optronics Corporation

Dennis Biray

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With the recent six-month rally, many investors feel that there are not many stocks or equities in the market which hold a strong value label. While such sentiment may be true, there is always going to be places in the market, in each industry, where money can easily be made. Respective to the computer peripherals industry relative to the technology sector, I believe to have, after examining the companies associated with such production, located a specific company, AU Optronics (AUO), which not only holds value relative to its rivals but, because of its strong fundamentals and recent emergence on the market, can be thought of as a growth stock as well.

Supporting a complete approach in terms of manufacturing, design, development, and marketing, AU Optronics controls a large portion of the entire process of its production. Focusing on the LCD flat panel display for both computer and entertainment purposes, with such innovation, AU Optronics, as the company has traded on the market for less than five years and has only been in existence for ten, will be a big player in the coming years as its global presence allows for a significant growth of margins. While recent news emerging from Taiwan has caused some concern regarding relative anticompetitive behavior, such a probe, if were to happen, would affect, more so, LCD developers relative to the diversified electronics industry such as LG. Phillips LCD. If no unusual behaviors were to be located, then with growth income supported in global economies such as found in Asia, along with a rise in growth in developed nations found in Europe, because AU Optronics has services in these regions, growth, due to more liquidity, relative to financial margins should skyrocket in 2007. While many economists, will argue that a recession, regardless if it is a soft or hard landing, will be a negative factor for elastic producers such as found in technology, because the dollar remains low and is expected to further decrease coupled with technology being one of the most heavily traded products, while AU Optronics may not see significant growth in America, because foreign nations are much more able to sustain strong economies regardless of what the United States does, companies like AU Optronics will remain strong throughout the new year.

Looking at fundamentals, AU Optronics, because it is still a recently new company, has some areas which are going to be largely different when compared to its industrial competitors. For example, while companies such as Logitech or Lexmark have enterprise values lower than their respective market caps, whereas AU Optronic’s is higher, because of its recent addition to the market, this company will have to incur some debt relative to cash in order to properly acquire the necessary capital and investment opportunities in the future. What matters more for a company like AU Optronics can be determined from its production methods and the revenue it gets out of it. When looking at such numbers, AU Optronics does marvelously well. This Taiwaneese based company not only has posted revenue growth exceeding 25% over the last two years, but using such indicators as in price per sales or enterprise value to revenue, AU Optronics performs at an excellent level compared to its competitors as well. With a EV/R ratio near 1.4 and a price to sales ratio of 1 regarding the past twelve months, such numbers when juxtaposed to Logitech’s 2.6 and 2.7 respective figures support the idea that AU Optronics is a profitable business, and once the company settles regarding capital findings which should decrease revenue costs, both net profit and gross margins should be expected to growth at phenomenal rates. Also noteworthy, when examining this company’s fundamentals, would be its EBITDA number near 1.8 billion. As the EBITDA is a proxy of cash flow, it is evident that AU Optronics has the money to finance new capital expenditures to make the company more productive allowing for a cycle of continued fame and growth to its consumers as demand will grow even higher during this new year. What is most intriguing about this company can be argued to be found relative to its P/E ratio. While most of the rivals to AU Optronics have come across their respective 52 week high over the past few months, AU Optronics still has not had the relative volume to push to new levels. However, over the last month a strong push of its recent fluctuated resistance and support range has become apparent, and to many investors, it looks like AU Optronics is ready to grow in terms of share price. Such can be a valid claim as the evidence is supported in terms of its multiple value relative to competitors such as Logitech or Symbol Technologies. While AU Optronics has a forward looking multiple of its earnings near 14, Logitech’s, looking forward is at a number of 22 while Symbol is at a value of almost 28. Such analysis proves to point out the relative cheapness of this company relative to its rivals. It is true that when growth is factored the PEG AU Optronics operates at is quite high relative to its competitors, but growth, along with profit margins will take time for this company to obtain. Nevertheless, as far as value is concerned in the short term, AU Optronics has the relative strength to produce high masses of capital gains for the smart investor.

Thus, after examining the fundamentals and economic relevance to the global market, AU Optronics, when compared to its competitors has the relative value an investor should pounce on. While the company may not have the most glamorous numbers relative to assets or net and gross profit growth, the company is still fairly new but has tremendous potential and possibilities to expand and produce at an amazing pace.

Dennis Biray presents advice on all kinds of topics ranging from finance and investing to fitness to sports. For more information email him at dbiray@gmail.com , or to view other articles written by him visit http://www.biraynetworks.co.nr


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