Monday, May 9, 2011

MIPS Technologies, Inc. (NASDAQ: MIPS) Q3 2011 Price Target

Recent price: 8.17$
P/E Ratio: 18.40
3 Months Target Price: 15$

Company Description
According to Reuters, MIPS Technologies, Inc. is a provider of processor architectures and cores that power some of the home entertainment, communications, networking and portable multimedia products. The Company’s technology is used in markets, such as mobile consumer electronics, digital entertainment, wired and wireless communications and networking, office automation, security, microcontrollers, and automotive. MIPS customers are global semiconductor companies and system original equipment manufacturers (system OEMs). The Company’s business model is based on the licensing of embedded processor intellectual property (IP) in the form of both architectures and implementations. The Company has developed standards for both 32-bit and 64-bit computing. It licenses its MIPS32 and MIPS64 instruction-set architectures (ISAs), application specific extensions (ASEs), core designs and other related IP to semiconductor companies and system OEMs.

Confidence Margins
Strong resistance $18.19 (+122%)
Light resistance $15.03 (+83%)
Light support $7.80 (-5%)
Strong support $5.91 (-28%)

MIPS Technologies Inc is one of the most exciting positions of this quarter. As the company issued it's revenue guidance for the second quarter of 2011, analysts were very disappointed and so were the investors who surrendered their shares in the following days. As the stock has now reached the bottom, current prices provide investors with an attractive entry point that offers mouthwatering potential returns.

Entry strategy
For the cautious investor:
Buy the stock for 9$ or less.

For the risk-taking trader:
The October 2011 9$ out-of-the-money call option contract seems to be the right position to take, they can be acquired for about 80$ per contract.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 15$, or keep it until 18$ if you are more bullish in your own analysis.

For the risk-taking trader:
The contracts should be kept until the underlying reaches around 15$. This should provide a satisfactory return if the underlying reaches the target price as the contracts will get in the money.

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