Saturday, December 13, 2008

From the Mailbag: Mellanox Technologies

Mellanox Technologies, Ltd. (NASDAQ:MLNX) is a technology company that builds high speed data transmitting infrastructure interconnects for enterprise IT equipment, including servers, storage devices, and network gear. The company is headquartered in Yokneam, Israel.

MLNX is a small-cap stock with a market cap of $254.3 million based on the current stock price of $8.03 per share. The company does not pay a dividend and has no intention of paying dividends to shareholders in the future (from disclosure in their annual report). MLNX has a price to earnings ratio of 7.75 and a price to book ratio of 1.2.

The balance sheet for MLNX looks quite strong as current assets less all liabilities results in a per share price value of $6.32. The debt to capital ratio for the company is very low at 1%. The company does not appear to have any liquidity issues with a current ratio of over 12 times. The current assets are made up of primarily cash and short term investments.

While the balance sheet is very strong, Mellanox has a high concentration of customers with the top 4 customers comprising over 50% of their revenues. The company also has short track record of profitability having just become profitable in 2005. This is a highly competitive and quickly changing industry. For these reasons I believe Mellanox has high business risk. Mellanox's competitive positioning and ability to continue to innovate value-add technologies are keys to their future success.

Disclosure: The author has no shares in this company.

1 comment:

Colfax-Greeley said...

They also own 90% of the nascent infiniband market that is just now being penetrated by the big boys of networking equipment (25% secular growth rate). While there is a lot of competition and their entrance into the 10gbE market worries me, seems like a growth stock with defensible IP can be had here for an $85m Enterprise Value and 4x EV/Owners Earnings.

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