Josh Kohn-Lindquist's avatar
$25.2m follower assets
1 Weird Small Cap to Check Out NVE Corp
I was playing around with some screeners and stumbled across $NVEC.

NVE is a $320M market cap that "sells devices that use spintronics, a nanotechnology that relies on electron spin rather than electron charge to acquire, store and transmit information."

Far bet it for me to tell any of you what that means, but it sounds fun and is some industrial/Internet of Things type of operation.

Here is their tear sheet:

They generate an incredible 55% profit margin, near 50% FCF margin, and have a rising ROIC currently sitting at 35%.

Image upload

The company pays a 6% dividend, or roughly $20 million annually for the last seven years, slightly above what it generates in income and FCF.

At first glance, this dividend doesn't seem sustainable, especially considering the company's lack of topline growth.

However, at its most recent earnings call, it announces sales and net income growth of 57% and 67%, respectively, YoY.

On the call, CEO Joseph Schmitz said, "The large product sales increase was primarily due to increased purchases by existing customers, along with the addition of some new customers. We did acquire some new customers from traditional semiconductor companies with our superior products and shorter lead time."

I made a brief post about the company on Twitter and had a gentleman who works for a long-only fund that owns NVEC comment that he spoke with the CEO after the call. They more or less reiterated that while a good portion of this growth was pulled forward due to supply chain issues, a decent amount of it was new customers -- implying that some of these higher sales should stick around.

It is more or less hearsay but fun to explore. I will keep learning about this company and its industry, especially as its P/E of 18 is interesting when paired with a now potentially sustainable dividend yield of 6%.

This is merely a 10,000-foot view of stock that caught my eye, and I was curious to see what you all might think of this weird company.
Gut feeling on NVE Corporation?
33%Like the profits and dividend
11%Like the new spike in growth
11%Gross, no LT history of growth
44%WTF are spintronics?
9 VotesPoll ended on: 11/24/2022
Simon Handrahan's avatar
>20x fcf for no growth over the last while with increasing working capital requirements doesn’t seem terribly interesting. would want to know that there is some growth ahead, otherwise i don’t see how this is going to return above an index. is there some kind of moat? i’m guessing not based on business description but haven’t dug at all. thanks for posting, it could still be interesting just need to dig deeper to find out.
Josh Kohn-Lindquist's avatar
@mos_capital thanks Simon 🙏

I agree, just surprised by that quarter of growth. It’s wild to me to do nothing for a decade and then post that.

Very curious to see what Q3 looks like and would be way more inclined to do a deep dive on them if growth stayed above 20% or so.

Just need more time with it, but wanted to see what you all thought, so thank you for your views on it.
Buyingyourtime's avatar
The inner nerd is intrigued. Good post.
Nathan Worden's avatar
Spintronics! 🤓