How Silicon Laboratories Gained 37% in 2016

By Anders Bylund Markets Fool.com

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SLAB data by YCharts.

What happened

Shares of Silicon Laboratories (NASDAQ: SLAB) rose 36.3% in 2016, according to data from S&P Global Market Intelligence.

So what

The maker of mixed-signal chips for Internet of Things devices put together a solid financial performance in 2016, beating Wall Street's earnings estimates in three out of four quarterly reports while consistently exceeding revenue targets.

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In October's third-quarter release, sales increased 14% year over year to $178 million and adjusted earnings jumped 51% higher to land at $0.77 per share. IoT products accounted for 46% of total sales, up from 42% in the year-ago period. These results were above management's own expectations in terms of revenue, expense controls, and profitable product mix.

The Si1144 heart rate monitor is found in many smartwatches and fitness bands. Image source: Silicon Labs.

Now what

At this point, Silicon Labs is exploring price levels not seen in 17 years. The stock is trading at 24 times forward earnings, supported by strong bottom-line growth and the promise of plenty more IoT-driven business strength. The management team's long-term targets are built around an annual sales increase of roughly 20% in the IoT segment. Silicon Labs is particularly invested in low-power wireless modules and video systems.

The company was also the subject of takeover speculation late last year. Silicon Labs boosted the payouts management would receive in the event of a change in control, sparking rumors that larger rival Maxim Integrated Products (NASDAQ: MXIM) could be kicking the tires and planning a bid. No such buyout attempt has occurred, but changes to executive incentives always have their reasons and should be taken seriously.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends Silicon Laboratories. The Motley Fool has a disclosure policy.