Blogger Jeffrey Clarke is eating up the GTAT monster. Clarke appears to have closely read my Seeking Alpha article focused on GTAT beyond Apple. He also took notice of my $64 minimum target for shares of GTAT, ” Matt Margolis expects at least $64 per share and I wouldn’t be surprised”. GTAT longs will be celebrating their own cold beverage on a sunny island together in a few years as their patience and vision get handsomely rewarded.
GT Advanced Technologies (GTAT) is one of the most interesting and most written about stocks out there right now. Matt Margolis, a contributor at Seeking Alpha, has become something of an internet sensation by publishing strong speculative evidence that Apple is using sapphire technology from GTAT to add solar charging functionality to the iPhone 6. That would be awesome for Apple and iPhone customers, but is only sort of interesting from the standpoint of investing in GTAT. Apple is going to buy a lot of sapphire from GTAT regardless of whether it has solar capability or not, and I think the value of that agreement with Apple is largely reflected in the current GTAT stock price of $18 per share. What’s more interesting about GTAT is everything else it has in its pipeline that the market seems to be not valuing at all.
To be fair, this isn’t a new or novel argument. Matt Margolis has published several articles on Seeking Alpha along similar lines and has concluded that the stock is worth $64 to $85 per share. He goes into a lot of detail and gets distracted by the solar angle, though. So a lot of my below conclusions borrow from his conclusions, but I’ll summarize, bring in other sources and add my own finance-driven perspective.
Matt Margolis has estimated that revenue from the Apple agreement will be approximately $2.2B in 2016. He is equal parts aggressive and conservative, and in total the estimate looks reasonable to me.
I’m not going to do the math to estimate a per share value, but potential upside of $3.0B per year on a company with 30% margins is a great option to be buying for free. The ride might be a little bit rocky this year because GTAT isn’t expecting to return to profitability until Q3 or Q4 of this year, but if they execute on the Apple agreement and start building an order book in any of the above incremental technologies, that rocky ride will transition to simply rocking, on the upside. Matt Margolis expects at least $64 per share and I wouldn’t be surprised.
A link to Clarke’s GTAT roundup can be found on the link below.
Full Disclosure I am long GTAT and have no plans to buy or sell any holdings in the next 72 hours.