Reasons Why You Should Add Rambus (RMBS) To Your Portfolio

Shares of chip designer, Rambus Inc. (NASDAQ:RMBS) have been performing well of late. Moreover, strong fundamentals and rising estimates is likely to aid in its bullish run. Consequently, if you haven’t taken advantage of the current situation yet, it’s time you add the stock to your portfolio.

The company has performed extremely well so far this year and has the potential to carry on the momentum in the near term. The stock has long-term expected earnings per share growth rate of 10%.

Ahead of the Industry

Rambus has outperformed the industry to which it belongs in the past three months. Share price of the company rose 14.7% compared with the industry’s meager gain of 2.5%.

Estimates Northbound

Estimates for Rambus have moved up in the last 60 days, reflecting the optimistic outlook of analysts. The earnings estimates for current quarter and fiscal 2017 have gone up over the same time frame.

For the current quarter, the Zacks Consensus Estimate for earnings has gone up 13.3% in the last 60 days and is pegged at 17 cents. The Zacks Consensus Estimate for fiscal 2017 also moved north by 4 cents (6.6%) to 65 cents.

Positive Earnings Surprise History

Rambus outpaced the Zacks Consensus Estimate in three of the trailing four quarters, generating an encouraging positive average earnings surprise of 6.9%.

Solid Rank & VGM Score

Rambus currently carries a Zacks Rank #2 (Buy) and has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best investment opportunities for investors. Thus, the company appears to be a compelling investment proposition at the moment.

Valuation

On the valuation front too, the stock looks attractive. The company currently trades at a forward P/E multiple of 20.8x, significantly lower than the industry’s average of 162.7x. The ratio, which is obtained by dividing a stock’s current market price with its historical or estimated earnings, measures the amount an investor has to shell out per dollar of earnings. Consequently, lower the P/E of a stock, the better it is for a value investor.

Growth Drivers

Rambus is poised well to capitalize on the rising popularity of energy-efficient lighting and LED products in the latest architectural, retail, commercial and residential lighting fixtures.

The company had signed a patent licensing agreement with hard disk drive (HDD) manufacturer, Western Digital Corp. (NASDAQ:WDC) , for an undisclosed sum. Per the terms of the agreement, Western Digital can use Rambus’ patented technology for its memory products for five years.

Rambus is going through a restructuring phase and we expect it to yield favorable results. Additionally, licensing agreements, the result of successful monetization of the company’s patents, remains a recurring source of revenues.

Moreover, the acquisition of certain serial link assets of Semtech Corporation’s Snowbush IP and Smart Card Software will enhance its product offerings, thereby boosting its top and bottom-line performance.

Other Key Picks

Other top-ranked stocks in the broader technology include Applied Materials, Inc. (NASDAQ:AMAT) and Micron Technology, Inc. (NASDAQ:MU) , both sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Materials and Micron have a long-term EPS growth rate of 17.1% and 10%, respectively.

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