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Summary

  • The stock is inexpensively priced based on next year's earnings estimates and growth expectations.
  • The company is paying a 3.77% dividend but at a high payout ratio of 68% of earnings.
  • As for its own stakeholder, Google, it is said by OLED-info.com that "Google isn't happy with the performance of the LCoS microdisplay and wants to upgrade to an OLED."

Himax Technologies, Inc. (NASDAQ:HIMX) operates as an IC design house with LCD manufacturing capability. On 08May14 the company reported first-quarter earnings of $0.09 per share, which missed the consensus of analysts' estimates by $0.01. In the past year, the company's stock is down 2.64% excluding dividends (up 2% including dividends) and is losing to the S&P 500 (NYSEARCA:SPY), which has gained 18.28% in the same time frame. Since initiating my position back on 17Jan14, I'm down 43.29%. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if right now is a good time to purchase more of the stock for my growth portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 17.95, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 11.31 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $0.59 per share and I'd consider the stock inexpensive until about $9. The 1-year PEG ratio (0.68), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is inexpensively priced based on a 1-year EPS growth rate of 26.24%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 26.24%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 39.3%.

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.77% with a payout ratio of 68% of trailing 12-month earnings while sporting return on assets, equity and investment values of 8.4%, 14.3% and 9.9%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.77% yield of this company is good enough for me to take shelter in for the time being.

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock bouncing off of oversold territory with a current value of 39.52. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars flattening in height, indicating the bullish momentum may be getting tired. As for the stock price itself ($6.64), I'm looking at $7.41 to act as resistance and $5.69 to act as support for a risk/reward ratio, which plays out to be -14.31% to 11.6%.

Recent News

  1. The company announced that it was going to increase its dividend by 8%. The $0.27 per share annual dividend will be paid to shareholders on 23Jul14 with an ex-date of 09Jul14 and forward yield of 4%.
  2. Google (GOOG, GOOGL) is said to be testing a Samsung OLED microdisplay chip for Google Glass. Google has a 6.3% stake in Himax but is rumored it will not be using the company's microdisplay any longer. This may just mean that Google may be dropping the chip provider which won't bode well for Himax. Google bought the 6.3% stake in the company July of 2013 with the option to increase the stake to 14.8% within a year but has yet to do so which indicates it might not have faith in Himax.
  3. Tiger Global Management initiated a 1 million share position in the company in the middle of May.

Conclusion

The stock was definitely good for a trade back in January, but not good as an investment. Without a vote of confidence from Google increasing its stake in the company it's pretty hard to validate it as an investment. Fundamentally, the company is inexpensive based on next year's earnings estimate and on future growth potential, while sporting excellent near- and long-term earnings growth potential. Financially, the company increased its dividend in the midst of all this turmoil so it does believe in its own business path or they are just blind. On a technical basis, the stock is bouncing off of oversold territory but the risk/reward ratio is too big right now. Due to the lack of faith in the company by Google, high risk/reward ratio, and what I believe to be a delusional management team raising the dividend, I will not be pulling the trigger on this name right now.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Himax Raised Its Dividend 8%, But Is It Worth A Spot In Your Portfolio?