[Originally published on Jul 1, 2014.]
Shares of Himax are currently trading at the low end of their actual value between $6.75 and $8.75 a share. The reasoning behind their lowered valuation is due to their current business model beginning to slow down. However, it is worth noting that Himax is fully aware of this and has initiated a transition that will propel them higher in the future.
Himax expects significant growth in their 4K TV and LCOS (Liquid Crystal On Silicon) markets. The majority of these products remain in their infancy and Himax has quickly become the leader in these markets. This is not including the already successful products that Himax is generating revenue from where continued growth is expected.
Right now Himax is being traded at a value that is factoring in all potential negatives that would arise in the future. Usually when a company has products that are expected to be so successful it is traded significantly higher than it's current valuation. In fact, there are companies that are generating absolutely no revenue that are trading over 200 times their current valuation due to the speculation of future revenue.
In the case of Himax it is being traded at cost. In the event that you apply the speculation that their future products will become successful (which I believe that they will) and trade them at 15 times their current value (which is surprisingly realistic) it would be trading at $131.25 a share. Although I agree that it would be insane to place such a high target on a company trading under $7, I would also like to add that it is just as insane for Himax to be trading at the price it is currently at.
Disclosure: The author is long HIMX.