Integrated Device Technology looks like a downright bargain. At around $20, shares of the California-based semiconductor firm (NSDQ: IDTI) sell for more than a 30% discount to their one-year high and slightly less than their price on March 3, when we first recommended IDTI.

Yet the stock didn’t plunge because the company is in trouble. Investors simply overreacted to some unwelcome news in management’s Feb. 1 earnings release. This included a revenue forecast 5% below Wall Street’s estimate for the current quarter and a slightly weaker profit outlook for the next couple of quarters as IDTI enters what tends to be its slower season.

Those certainly aren’t reasons for an all-out panic, but if the market can’t help tripping over short-term hurdles that’s fine with us. We’re happy to get a big discount on IDTI, as the stock holds impressive long-term promise.

So we’re sticking to our recommendation: Buy IDTI to $23.

IDT showed some of that potential last quarter, when revenue and profits both soared by double-digits. Performance is robust over long stretches, too, with revenue and earnings gaining 32% and 235%, respectively, during the past four fiscal years that ended in March (including estimates for the current quarter). IDT’s stock is up more than 170% in three years, despite the recent setback.

Essential Products

Founded nearly four decades ago, the company has a diverse product mix that positions it for outstanding growth in the $334 billion global semiconductor market. Analysts see the bottom line compounding almost 19% annually over the next five years.

Management is especially optimistic about IDT’s high-performance memory chips. Tech titan Intel (NSDQ: INTC) needs the chips for its newest central processing unit—the “brain” for PCs and laptops—due out this year. Demand for the memory chips should remain strong, because Intel regularly upgrades its central processing units and expects another new release next year.

IDTI is well-known for expertise in wireless battery charging, a feature Apple plans to add to the iconic iPhone by next year, making Apple a potential customer. As it announced March 22, IDTI is already partnering with South Korean tech giant Samsung to provide wireless charging for that company’s newest smartphone, the Galaxy S7, as well as for several other Samsung mobile devices.

For many years IDTI has been a leading supplier of several ubiquitous semiconductors, like high-performance timing chips that coordinate signals between digital circuits. Such chips are crucial for computer networking, wireless infrastructure and large-scale data storage, among other applications. IDTI is also a top provider of semiconductors necessary for creating digital memory, regulating power consumption and charging widely used medical devices, including MRIs.

Yet another indispensable offering: a broad line of switches that link up computer systems. These technologies are key for wireless communication and improve image quality for video and teleconferencing. They also improve electronic components in military aircraft and naval vessels.

While China’s slowing economy could trip up many semiconductor companies, IDTI shouldn’t be affected much even though it does substantial business there. As CEO Gregory Waters noted during the February conference call, “We are not exposed to (markets) in China that we expect to undergo a significant slowdown.”

Lucrative Acquisition

Management expects big things from ZMDI, a highly profitable German chip maker bought in December. The buyout immediately made IDT a force in the steadily expanding, multi-billion-dollar market for components of smart sensors that improve handling and safety in cars and the precision of industrial machinery.

Hyundai Motor, Kia Motors and General Electric are a few of ZMDI’s biggest customers. Such connections should help additional sales of IDTI semiconductors, such as those compatible with automotive infotainment systems.

In the current quarter, ZMDI will add revenue of $19 million, about 10% of the projected total, IDTI’s management estimates. With ZMDI in the fold, annual revenue should quickly approach $800 million. The operating margin (a profitability measure calculated after subtracting business-related costs from revenue) should soon reach 30%, compared with 22% now and 8% five years ago.

IDTI is financially healthy, even after shelling out $307 million for ZMDI. According to the Feb. 1 release, cash and short-term investments readily converted into cash still total $352 million, which is just above IDTI’s 10-year average of $346 million.

The company also has excellent free cash flow, the amount of cash from business operations remaining after subtracting the cost of maintaining or replacing manufacturing equipment and other company property. At $191 million a year, free cash flow far exceeds the 10-year average of $102 million.

Sound financial underpinnings give IDTI the flexibility to take on some debt, which the company did in October when it issued $325 million of bonds that can be held to maturity in 2022 or periodically converted to IDT stock. The bonds carry an interest rate of just 0.875%, providing a cheap source of funds for IDTI to buy back its own stock, a common way to reward shareholders by reducing the amount of company stock available on the market so earnings per share go up. The bonds did raise IDT’s debt to about 40% of shareholders’ equity, though that level is quite manageable for a company with so much cash.

IDT doesn’t pay dividends, but buybacks should help boost share prices over time.

So we recommend buying the stock now, while it’s still selling for only 13 times next year’s profit estimates.