CRDO meets portfolio criteria due to strong fundamentals (triple-digit growth, scaling margins) and reasonable valuation post-sell-off; considered for buying or holding.

We did a practical walkthrough of how you would use that platform with Credo Technologies.

But the two companies that maybe we could call new Baby Broadcoms, Astera Labs and Credo Technology, the one that has actually sold off pretty hard.

Let's just take a look at Credo. This thing highlights who the leaders are in each metric. Credo is the one that's growing at the fastest rate, hundred and fifteen percent year over year in the most recent quarter, but it's the one that sold off recently.

As for Credo, the operating margin is actually quite good of the three smaller companies that lag behind the giant Broadcom, operating margin at twenty five percent. Free cash flow conversion across all three just so happen to be about seventeen to eighteen percent in the most recent quarter. Not bad for fast-growing scaling businesses.

And there's also some net cash on balance here, not quite as much as Astera, but where you can see seven hundred and sixty-four million. Looking at these companies, Credo is the one that has sold off. It's growing the fastest.

Credo, if you go through the steps on the previous page, learn about the company, you'll know this is a fabless designer of chips. They also license IP for their active electrical cables.

They supply active electrical cables and other networking technology for AI data center networking.

And Credo most definitely the revenue is growing at a very fast pace, well in excess of the industry average. But, this is most definitely a cyclical business, even though the current growth cycle is masking that.

All things AI data centers are going up and expected to continue to do so for the foreseeable future. But based off of the historical norms for this industry, I'm just gonna put a yellow flag here because we should expect at some point in the future revenue to start to get lumpy.

This is not a recurring subscription sales business or something like that.

Revenue growth is in the triple digits. That's really fantastic. Operating margin is scaling. Free cash flow is scaling. Per share profit is scaling. The balance sheet is healthy.

Yes, the stock has sold off, but this still meets our criteria for something to be in our portfolio. And so at this point, it could be something we are interested in buying.

This is a new company, so there's not a ton of history going back to past cycles. The two metrics are slowly converging. Those are listed here at the top, the trailing twelve-month earnings per share and free cash flow per share.

I'm just gonna leave this at the default of a fifty/fifty blend between the two and expect these two numbers continue to converge over time as the company matures.

So we're solving for the current stock price today, which happens to be just shy of $171. What is the average growth rate over the next three years to get us to fair value? And as of right now, based on this current assumption, it's 58% for the next three years.

Credo did provide some guidance. They're still projecting 70, 80% revenue growth for their new fiscal year.

For us, this is one after a pretty major sell-off that looks like it's kind of back within a somewhat reasonable range. Of course, we would need to focus on the fact that if there is a severe slowdown in the pace of AI data center build-out, Credo's revenue growth and probably some of their profit margins that have scaled to a pretty healthy margin are probably not going to stand.

But as of right now, this will be something that we're gonna continue to hold onto it in the portfolio and stick it on the watchlist. I think we have a full position already in our portfolio.

But if we didn't have it, it would be one we're interested in buying.