Semiconductor business Sigma Designs (NASDAQ:SIGM) has had a tough year — unsurprising for a company is in the midst of a voluntary liquidation plan. SIGM stock briefly made its way toward $7 per share at the beginning of this year, but the share price has since been languishing around $6.10. Investors are waiting for Sigma to confirm its next moves.
But Sigma made headlines yesterday when Nasdaq decided to cancel a group of SIGM trades.
SIGM Stock’s Special Distribution
On July 20, Sigma management announced that it would pay out an initial distribution of $6.00 per share to shareholders as part of its dissolution plans. Sigma stated that the distribution would be paid to shareholders of record as of July 31.
But unexpected confusion regarding the payout caused Nasdaq to cancel all SIGM stock trades made at or below $4.88 per share between 4:00 am and 6:40 am on July 30. Nasdaq terminated the orders on the grounds that they were “clearly erroneous.”
The confusion stemmed from the fact that SIGM stock paid out a special dividend on July 30 according to Yahoo Finance and Nasdq, which took the share price lower accordingly. However, because the special dividend made up more than 25% of the firm’s overall assets, the ex-dividend date, August 15, came after the record date (Monday July 30 or Tuesday July 3, depending on the source…so yes there is confusion). Because of the disconnect, confused traders stood to lose a substantial amount of money as shares dipped below $1 per share on Monday morning.
Nasdaq’s decision to cancel the trades has sparked some controversy among traders, who say the market shouldn’t be taking a profit-making opportunity from knowledgeable traders who were able to buy the stock for pennies. Others claim that Nasdaq made a good call in stopping people from getting burned due to a dating technicality. In any case, the decision has been made and the trades were nullified leaving Sigma stock to trade just above $6.00 per share on Wednesday morning.
Now, SIGM investors will be watching for the company’s next moves. When the $6.00 initial distribution was announced, management said the company was expected to have an additional $15 million to $20 million to pay further wind-down expenses and satisfy claims, what’s leftover will be used to make further distributions to shareholders.
How to Play
If you don’t want to get caught up in SIGM stock’s confusion, you might consider Silicon Labs (NASDAQ:SLAB), which acquired Sigma’s Z-Wave business for $240 million in April. Z-Wave offers networking technology to help support the internet of things and the synergies between the two businesses are expected to help SLAB improve its wireless hardware and software portfolio.
Silicon Labs looks to be on solid footing as well — the firm’s second-quarter results came in ahead of analysts’ expectations and the firm’s forward guidance was also better than predicted. Management said it expects to see revenue between $224 million and $230 million, which would translate into EPS of between $0.95 and $1.01.
Overall the Q2 results were rosy and should have taken the firm’s share price higher, but instead SLAB stock dipped below $95 per share. This year, SLAB stock has made its way more than 40% higher as the company’s potential and the long growth runway in the internet of things industry helped fuel optimism surrounding the stock. That has given Silicon Labs a P/E ratio above 50- meaning it’s not exactly a cheap buy.
However, the firm looks to be on firm footing and its debt to equity ratio of 33.86% doesn’t look to be far outside the normal range for the industry. If you’re looking to add a semiconductor play focused on the internet of things, SLAB stock is a pretty good bet and with the share price taking a hit for no apparent reason following a strong second quarter report, now makes for a good entry point.
SLAB also allows you to profit from Sigma’s liquidation while staying far away from its dividend mess.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.