Circuit-Board Maker Boasts Low P/E, Profits

The point here is that there's nothing all that special about making PCBs. That means the work isn't terribly profitable. The average circuit board printer turns just three cents of each dollar in sales into operating profit. Most operate out of cheap labor markets in Asia. But North America's largest PCB supplier, TTM Technologies (TTMI), based in Santa Ana, Calif., clears about 10 cents on the dollar in operating profit.

TTM's plump margins are a result of its focus on two types of jobs that pay better than most. The first are contracts for boards whose conductive pathways not only race around a single layer but jump among many stacked layers — just the thing for manufacturers who need to cram plenty of functionality into an impossibly tight space. The second are jobs that need finishing in a hurry. More than 80% of TTM's sales come from boards with 10 or more layers. About a third of sales comes from jobs that are turned around in less than 10 days. It completes some jobs in a day.

As a traded company, TTM has a history of producing anything but reliable returns. The company offered shares at $16 apiece in September 2000. They opened above $20 on their first day of trading. Barely more than two years later they went for $1 and change. They saw $20 again in early 2004 and then $6 a year and a half later. Now they fetch just under $15.

Maybe a smoother performance is in store. Last year TTM completed its acquisition of the PCB division of Tyco International (TYC), effectively doubling its size. The deal added to profits right away. It allowed management to consolidate staff, computer networks and accounting systems, thereby cutting costs. It has also enabled to company to burrow further into the lucrative aerospace/defense market, where it now holds a 20% share and draws a third of its sales.

Analysts say TTM's focus on complex and quick-turn boards has helped insulate it from the wild profit swings common to companies that make lower-end boards. And new board complexities introduced in recent years should give well-funded companies like TTM profit-boosting opportunities that go well beyond adding layers. Wall Street expects the company's per-share profit to surge 33% this year and 16% next year. That makes the stock at less than 14 times this year's forecast seem attractively priced.

TTM turned up recently on a screen for companies with low price/earnings ratios relative to their earnings growth forecasts. Have a look at all eight survivors if you like, or run the search yourself using SmartMoney's stock screener and the full list of criteria.

Correction:
This screen incorrectly listed some of the search criteria in its original recipe. The screen looked for companies with trailing P/E ratios that are lower than EPS growth forecasts for this fiscal year and next.

Also See:

Download Today's Screen