Is OmniVision Technologies a Buy Right Now?

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Digital camera-sensor specialist OmniVision Technologies (NAS: OVTI) has been on a roller coaster lately. Right now, shares are at the bottom of a stupefying drop, making a strong return from this price seem more and more likely.

Like fellow Fool Evan Niu, I bought into the camera-chip maker over the summer. The rumor mill suggested that Sony (NYS: SNE) was stealing OmniVision's plump Apple (NAS: AAPL) account on the eve of the next iPhone's unveiling. Management claimed that macroeconomic caution and a PC market slowdown were to blame for cautious guidance. So sellers were reacting to baseless speculation. That's a solid buy situation.

Later, the iPhone 4S hit store shelves, got torn apart by third-party analysts, and found to contain at least some Sony cameras but also secondary OmniVision sensors. Finally, Mother Nature laid the big hammer on the tech sector by flooding the surprisingly important manufacturing facilities in Thailand. With at least one major customer -- which may or may not be Apple -- scaling back on handset builds, there's finally some smartphone downside to the OmniVision story.

However, that's a short-term concern for a stock with tremendous long-term value.

OmniVision has more than $8 of cash per share and the stock trades for less than book value. A PEG ratio of roughly 0.5 implies that the stock should be worth about $26 today, which is exactly what I'm thinking.

The one and only concern I have about OmniVision today is that Sony appears to have competitive backside lighting chips on the market already. Their construction is supposed to be too expensive to be competitive unless you have access to OmniVision's in-house technology. The BSI moat was supposed to last another year or two.

And it still might. There's a good chance that OmniVision itself or one of the camera-module manufacturers up the supply chain simply couldn't get enough OmniVision chips to meet Apple's launch demands, then turned around and bought more expensive chips from Sony to fill the gap. Keeping Apple happy would be worth eating the cost of using Sony's too-expensive chips for a while.

The next earnings report comes on Nov. 29 and will clear up a lot of the question marks surrounding OmniVision. In particular, I'm looking for strong long-term guidance that would indicate that today's obstacles were nothing more than temporary speed bumps. If that happens -- and I fully expect it to -- share prices should hit the $20s. It's only fair, after all.

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At the time this article was published Fool contributor Anders Bylund holds a synthetic long position in OmniVision but holds no other position in any of the companies mentioned. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

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