Stephen Frankola sends: Though I tend to avoid “penny stocks” (and, generally speaking, I’d advise others to do the same), there’s one company with a lowly share price that is better than its label. The Soyo Group (SOYO.OB) is a tiny electronics company with a bright future.

Soyo makes many different types of consumer electronics. They began making high-performance motherboards and other specialized parts for computers, and have since branched out into other products. Currently, they make products like bluetooth headsets, USB flash drives, and other devices that they can sell cheaply and competitively.

However, their current cash cow is LCDs. They began producing LCD monitors for computers, and sales took off - during a particular week in August (and, I’m sure it represents a broader trend), Soyo’s 24-inch LCD was the bestseller throughout the country, beating Samsung, LG, HP, and others. (Soyo had 50% market share; see the press release).

They now sell a wide range of monitors at multiple big-box retailers, including OfficeMax (OMX), Office Depot (ODP), and Fry’s, along with multiple other retailers. They also sell products via the internet, including Overstock.com. Here is a Soyo monitor at Overstock (OSTK); check out the great reviews.

The most recent and potentially lucrative development is a partnership with Honeywell (HON) to produce large LCD TVs under the Honeywell brand name. This should help Soyo continue to grow sales; attractively-priced TVs and monitors will now be available under a name consumers know and trust, not some mysterious discount brand. They are debuting some Honeywell monitors in early 2008, followed by larger TV’s throughout the year.

The LCD market is certainly very competitive. However, Soyo’s products have been reviewed very well, and as Americans are watching their pocketbooks as the country is becoming economically challenged, they might be more eager to pass on a Sony TV or a LG monitor if a cheaper, high-quality alternative is available.

Soyo is also growing at a feverish pace. Net revenues increased by 124%, to $24.2 million in the three months ended June 30, 2007, compared to $10.8 million in 2006. They reported earnings per share of $.05 during the three months that ended September 30th, and their earnings during this holiday quarter should be excellent, too. So far this year, they’ve earned $.06/share, which means the stock is trading for 18x trailing earnings. That’s already very reasonable for a company with such growth; but if Soyo can earn another nickel in the fourth quarter, or project a dime for next year, the shares will undoubtedly look extremely undervalued.

At least to my knowledge, Soyo is not some pink-sheets scam corporation. The stock is volatile, and volume is low though; so beware of manipulation. I have my own money at risk on Soyo, because I believe that it is a legitimate company that will continue to grow quickly. Since it is trading at only $1.12/share (and has a $50 million market cap), there is tremendous potential for growth in such a tiny company. But, the dangers of investing in a company like Soyo are much higher than with a larger, more established company; as always, do not invest money that you cannot lose. However, as long as Soyo’s books aren’t cooked and they continue to grow their brand as they have thus far, I believe Soyo could be a ten-bagger over the next few years. Who knows - maybe in a decade, a Soyo might be as commonplace as a Sony (SNE).

Subscribe to our feed:

Visit Stephen’s Blog

Disclosure: Author is long SOYO.OB.
Additional Note: Trading in OTC securities is very risky. I am not a registered investment adviser and do not recommend you trade on my opinion. Always do your own research, as you are solely responsible for any investment decisions.