Very few technology stocks are trading at 10-year highs, but San Jose-based Sanmina Corporation (NASDAQ: SANM) is one of them. 

Last week, the mid-cap gapped up after another strong quarterly report. It put a bow on what was a phenomenal fiscal 2022 for the company. Earnings per share (EPS) handily topped Wall Street’s forecast in all four quarters.

The resounding outperformance contrasts what has been a rough year for technology investors. Supply chain constraints and tepid IT spending have left many in need of emergency medical services.

At Sanmina, though, a very different kind of EMS is experiencing strong demand. 

Interest in the group’s electronics manufacturing services — circuit board assembly, fabrication and testing — is building. And the best part is, even with the U.S. economy teetering on a recession, growth is coming from a range of end markets.

Who are Sanmina’s Customers?

As a provider of integrated electronics manufacturing solutions, Sanmina serves original equipment manufacturers (OEMs) in fast-growing industries. Its customers mostly reside in the communications, cloud, industrial, automotive, medical and defense markets. 

Even when companies cater to a diverse set of end markets, they often specialize in one area. That’s not the case with Sanmina. 

Roughly 60% of revenue comes from outside the networks and cloud infrastructure business. Since this all-encompassing segment includes industrial, medical, defense and automotive customers, there isn’t a heavy dependency on one industry. The same goes for the individual customer level. Sanmina’s 10 largest customers account for less than half of total revenue in. Simply put, the company is diversified growth at its best.

Soon Sanmina is slated to get more business in India. Last month it completed a joint venture (JV) arrangement with Reliance Industries Limited, a multinational conglomerate based in Mumbai. The JV, which starts with a $200 million cash budget, will leverage Sanmina’s electronics manufacturing expertise and Reliance’s knowledge of the local Indian market. Given Reliance’s strong presence in the energy, retail, textiles, and media markets, the partnership should expand Sanmina’s scope and diversify an already diverse model.

How Did Sanmina Perform in Fiscal 2022?

These customers combined generated broad-based revenue growth in the company’s recently reported fiscal year. Last week’s Street-topping Q4 results capped off a stellar year for Sanmina that few saw coming.

After a down year in fiscal 2021, revenue growth rebounded 17% to $7.9 billion. Earnings per share (EPS) growth was even stronger at 26%, a function of an expanded operating margin and improved scale.

It was an especially strong performance considering the supply chain challenges and mounting economic uncertainty. Going forward, management said it expects supply chain pressures will subside. If that’s the case, this points to an even stronger performance in the new fiscal year. 

Sanmina exited the year with one of the strongest balance sheets in the tech sector. Through October 1st, debt was less than two-thirds of the cash position. Along with $1.4 billion in liquidity, this should afford ample flexibility to pursue organic growth and additional JV opportunities.

Financial strength supported Sanmina’s ability to buy back 8 million shares of its own stock during fiscal 2022. This pushed it past the $1 billion mark in repurchases dating back to fiscal 2014. An additional $164 million is left on the current repurchase authorization which could limit any near-term profit-taking pressure.

Does Sanmina Stock Have More Upside?

On a trailing 12-month basis, Sanmina is trading at 13.5x adjusted earnings. The average P/E in the electronics equipment industry is around 19x, which means Sanmina shares remain woefully undervalued even after soaring more than 60% this year. 

If the company’s P/E multiple were to expand to the industry average, a move that is warranted based on the past year’s bottom line growth, the stock would climb above $90. This implies another 30% to 40% upside from current levels.

The stock looks even more attractive on a forward P/E basis. Wall Street analysts are projecting 17% earnings growth in the current fiscal year. This means Sanmina’s 17% growth can be had for less than 12x forward earnings.

Despite its impressive ascent over the past decade, not many sell-side research firms cover Sanmina. This is part of why it has largely flown under the radar while mega cap tech garners the headlines. Those that do cover the stock are mostly bullish. In the wake of the Q4 update, Sidoti actually upgraded Sanmina to buy with a $78 price target. 

For the current quarter, management guided to EPS of $1.46 at the midpoint. This implies 35% growth — growth that most struggling tech companies wouldn’t mind having half of. 

Considering growth can come from all over the place (5G mobile networks, electric vehicles, military drones, renewable energy, diagnostic imaging to name a handful), look for Sanmina to keep manufacturing outperformance in 2023.