Universal Electronics: If You Buy, Buckle Up

• Price: $18
• Forward P/E: 8.8
• Earn. Growth: 38%
• Projected Sales Growth: 45%
• Market Cap: $270 million

Why It's Featured: Above average growth in sales and earnings expected this year; expanding rapidly into Asia/Pacific regions.
Danger Zones: Demand in Europe is slowing; still very small company. Universal Electronics UEIC and its subsidiaries develop pre-programmed wireless control products and audio-video accessories that enhance home entertainment systems. The company offers infrared and radio frequency remote controls; audio-video accessories; integrated circuits; and software, firmware, and technology solutions that enable devices, such as televisions, set-top boxes, stereos, automotive audio systems, cell phones, and other consumer electronic devices to wirelessly connect and interact with home networks and interactive services to deliver digital entertainment and information. It also licenses its intellectual property primarily to original equipment manufacturers (OEMs), software development companies, private labels, and multiple systems operators. Universal Electronics Inc. sells directly, as well as through retailers and distributors in Europe, Australia, New Zealand, South Africa, the Middle East, Mexico, Asia, and Latin America under the "One For All" name. Its primary markets include cable and satellite service providers, retail, OEMs, custom installers, private label, and companies in the personal computing industry. The company was founded in 1986 and is headquartered in Cypress, California. This stock may be a way to get in on the China market. 23% of all sales for UEIC were from that fast growing economy in the first half of 2011. Last year, it accounted for only 6% of revenues. While the Asia/Pacific region grows, Europe slows. Previous years saw 25% of sales come from Europe. Now it represents a little under 10%. The only bright spot: France where sales almost doubled year over year. The other parts of Europe saw flat or lower numbers. For the entire region, revenues were down 39% compared to last year in the first half. Don't expect much rejuvenation as debt debacles continue. The good news: South Korea, Taiwan and Malaysia now represent 15% of sales, up from 6% last year. Look East, young companies, look East. Earnings are always the driver behind every stock, and UEIC is about to deliver good ones. Last year, earnings per share (EPS) were $1.27. This year, 6 analysts have a consensus estimate of $1.75 (with a range of $1.53 to $1.85). Next year, they see $2.06 (with a range of $1.79 to $2.27). The earnings call is today (Nov. 3). Third quarter results should tally 51 cents (up 50% from last year's 34 cents in the third period). Look for 65 cents in the final quarter vs 45 cents last year in the fourth. The company expects more growth from its new customer Roku. Roku makes devices that stream TV shows and other media content over the Internet so viewers don't need cable or satellite dishes to watch. Universal is currently working with Roku to enhance its user interface. This could be a very large market for UEIC. (Looking for more Aggressive stocks? See our collection at www.theonlineinvestor.com) This stock has been out of favor for the last 7 months, falling 30% in that time, with most of the damage coming in the last 4 months. Maybe it's because Europe demand is slowing more than anticipated. Maybe it's because the whole electronics sector has been under fire. Whatever the reason, these lower levels make valuations attractive. Essential Numbers:

• Trailing P/E 16.2
• Price to sales ratio: .66
• Price to book: 1.21
• Operating margin: 5.59%
• Profit margin: 4.01%
• Return on equity: 8.4%
• Return on assets: 4.8%
• Revenues for last 12 months: $409 million
• Total cash: $37.9 million
• Cash per share: $2.53
• Total debt: $20.6 million
• Total debt to equity: 9.2%
• Current ratio: 1.61
• Book value per share: $14.95
• Beta: .72
• 52 week change: -12.9%
• Shares Outstanding: 14.96 million
• Float: 13.14 million
• Insiders own: 13.24%
• Institutions own: 82.6%
• There is no dividend.

This stock has seen plenty of volatility over the last 4 years, peaking at $39.30 in 2007, then cracking to $10.90 in early 2009. Since then, it's been up, but not straight. And the last 6 months have been particularly hard. So if you like UEIC well enough to add it to your portfolio, be prepared for a bumpy ride. Of course, more investigation is highly recommended. Company Web site: www.uei.com Ted Allrich
November 3, 2011 Ted is the Chairman of the Board of B of I Holding and Bank of Internet USA. He is also the founder of The Online Investor (www.theonlineinvestor.com) which has a Free Newsletter for investors.