Netlist (NLST) Settles With Micron, Is The Upside Already Priced In?

Why Netlist’s Micron Deal Matters Now

Netlist (NLST) has just turned a long legal battle into a five year business relationship. Micron will license Netlist’s memory patents and pay a total of US$600 million over the term.

Netlist’s latest Micron settlement comes after a powerful run, with the share price logging a 1 month return of 27.9% and a 90 day gain of 125.2%. The 1 year total shareholder return is very large, and recent daily volatility, including a 1 day share price decline of 7.6%, shows that momentum remains intense rather than settled.

Scan beyond Netlist’s Micron deal and see how other memory and semiconductor plays with strong fundamentals line up in our hand picked list of solid balance sheet and fundamentals (25 results).

Some investors now see Netlist as a patent powered cash machine, while others see a lawsuit story that just enjoyed a one off spike. Which side does the current valuation lean toward as the Micron money is priced in?

Preferred Price-to-Sales of 7.9x for Netlist: Is It Justified?

Netlist shares last closed at $6.42, and on current figures the stock trades on a P/S of 7.9x, which screens as expensive next to both peers and the wider US Electronic industry.

P/S compares a company’s market value to its revenue. For a memory hardware player like Netlist, that is a useful check on how much investors are paying for each dollar of sales in a sector where profitability can swing around one off legal items and licensing deals.

Here the P/S story is clear. The 7.9x multiple sits well above the estimated fair P/S of 5.5x that regression analysis suggests the market could rotate toward. It also exceeds both the US Electronic industry average of 3.1x and the peer group average of 4.4x by a wide margin.

Explore the SWS fair ratio for Netlist.

Result: Price-to-sales of 7.9x (OVERVALUED)

Still, the story can flip fast if legal wins slow or if Netlist’s revenue mix remains heavily skewed toward China and a narrow set of customers.

Find out about the key risks to this Netlist narrative.

Next Steps

There are mixed views on whether Netlist’s run is built on durable fundamentals or short-term legal wins. Do not wait for consensus to form. Review the key issues and weigh the 2 key rewards and 3 important warning signs.

Looking For More Investment Ideas Beyond Netlist?

If Netlist has your attention, do not stop there. Broaden your watchlist with other clear, data backed opportunities that could sharpen your next investing move.

• Target resilience first and check out a hand picked pool of companies with sturdy finances through the 31 resilient stocks with low risk scores.
• Hunt for potential mispricings by scanning the 28 high quality undervalued stocks that blend strong balance sheets with attractive valuations.
• Build a steadier income base and review the 8 dividend fortresses offering higher yielding payouts backed by solid fundamentals.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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