Dolby has a fantastic history of churning out free cash flow.
With an ROE of 22% and OM of 44% it's no wonder. They have a perfect business model, able to make transitions easily and piggy-back on any of the latest technologies that do audio output. What's more, even during recessions and economic downturns they have such a well-placed business strategy that they manage to grow profits either way.
For example:
The past 52 weeks have seen a hard decrease in the overall market, with the SP 500, even after the last month's run-up, trading a discount of over 10% compared to last year at this time.
Despite this, Dolby's profit grows, it has $420 Million in cash and a meager $10 Million in debt - that's 10% of the overall value of its business in CASH.
Here's an example of why. In a recession, sales of new home theater systems, consumer discretionary electronics, computers, etc. dwindles.
However, during a recession, moviegoer attendance always hits new highs as people try to escape the realities of job-loss, financial scraping, and market pessimism they hear and see every day. Well, Dolby takes a royalty from those showings.
This is just one example of how Dolby's business model insulates the blow of recession that knocks the wind out of so many other tech companies. With the advent of HD technology and Blu Ray, they only have more venues through which to market their famous brand. They have no product to stock, no warehouses to keep - overhead is low while margins are high. Perfect.
Buy now while they have dipped back down to the 2-year trend line and you should be sitting on an easy 75% - 100% in a year.
Coreadrin
$42.86 (08/17/08)
