Financial results experienced a nosedive in 2009 due to the recession. Performance has rebounded in 2010 to prior levels, and momentum is continuing to build. For the entire year we estimate sales will finish at $27 million, consistent with the 2008 level, and up 46% from the year before. Non-GAAP earnings (see "Accounting Notes") could reach $.28-$.30 a share. Data I/O ended the September quarter with $17.5 million in cash, moreover, representing 60% of total assets. That figure might expand further in the seasonally strong December period.
Next year sales of $32 million (+18%) appear to be a realistic target. Margins promise to widen on the higher volume to provide a 25% gain in earnings to $.35 a share. Booming smartphone growth combined with solid gains in other electronics intensive industries could support a stronger showing. Data I/O also could put its cash reserves to work via acquisitions or joint ventures, creating the potential for further leverage. The company has increased its diversification efforts of late, so a material transaction is a realistic possibility. A variety of targets have been identified, both in Data I/O's core market and in related areas.
In 2-3 years sales could attain $40-$45 million, exclusive of acquisitions. Margins may continue to widen, propelling earnings into the $.50-$.60 a share vicinity. Acquisitions could provide an additional $.10-$.15 a share in earnings (assuming $10 million invested at a 10%-15% rate of return). Applying a P/E multiple of 18x to the midpoint of the range suggests a target price of $10 a share, potential appreciation of 75% from the current quote. A higher valuation is possible if Data I/O succeeds on the acquisition front. The company's industry leading position could make it an attractive takeover target itself.
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