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  • Semiconductor I/C Fundamental Analysis Of HIMX Versus PXLW 1 comment
    Jul 17, 2014 12:35 AM | about stocks: HIMX

    The Semiconductor sector has been lagging behind since the 2008 recession and it appears that 2014 will be a breakout year for the industry with sustained sales growth projected for 2014 and beyond. www.semiconductors.org/blog/semiconductor_industry_forecasts_broad_and_sustained_sales_growth_for_2014_and_beyond/

    Semiconductor 2014 sales forecast has been revised up from 4.1% to 6.5% and the SMH ETF has rocketed from $30 PPS in January 2013 to over $50 PPS this July. Is the sector due for an adjustment and are companies being fairly priced based on their fundamentals? www.google.com/finance

    Two stocks that stand out are Himax and Pixelworks, very similar companies that have both shared some major exposure from Google and Apple. Last year, Himax grabbed the market's attention when Google announced a $3M investment into Himax subsidiary, Himax Display. This investment came on the heels of the news that Google would be using Himax's LCoS technology in their new head mounted display, Google Glass. At the time of the announcement, Himax was trading at just over $5 a share. Over the course of the next 7 months, Himax managed to climb to an outstanding high of nearly $16 per share. Was this valuation sustainable? Hardly not based on the excessive TTM P/E ratio of 45 and the delay of Google's Glass product launch. Couple that with numerous analyst downgrades and plenty of "lost customer" rumors and the free fall was destined to wipe out the entire 2013 gains.

    It seems that the same eager analyst that jumped on board to drive the price up with outrageous price targets in the $20's, were just as eager to create panic in April 2014 that has essentially tanked the price per share to levels that clearly represent an undervalued opportunity for the right investor.

    For two months, analyst took every opportunity to use their public platform to repeat innuendos and rumors that Google Glass was changing directions and Himax had also lost a large Korean manufacturer (Samsung) as a customer and expected headwinds to challenge their 2Q14 forecast. blogs.barrons.com/emergingmarketsdaily/2014/04/15/himax-loses-large-customer-northland-capital-lowers-tp/

    Analyst repeatedly downgraded the stock creating panic with words like "could" and "may" that have caused the share price to be driven down to levels not seen since 2013. blogs.barrons.com/emergingmarketsdaily/2014/05/08/chardan-himax-weak-q2-guidance-no-google-glass-2014-sell/


    Market over reaction has taken it's toll on investor sentiment and Himax share price. For the patient investor on the sidelines, this may present an attractive entry point with plenty of upside potential and little downside risk. Strong sales are proving analyst wrong beginning with large panel TV sales brought on by the World Cup Soccer tournament and recent reports of consumer electronics hitting an all time high in 2014 and 2015 247wallst.com/consumer-electronics/2014/07/15/consumer-electronics-sales-going-to-all-time-highs-in-2014-and-2015/

    Fast forward to Pixelworks recent news that they are working with a top tier mobile hardware provider on a new display product. Once again, rumors imply that the customer is Apple and the product could be for the new iPhone 6 or iPad. The share price of PXLW has shot up over the last 30 days and is reminiscent of the Himax climb to fame. The fundamental difference between these two companies is found in the financial analysis.

    There are a few bearish analyst that continue to bash Himax while others are espousing the virtues of PXLW. Jim Cramer recently said Himax is dead and to move on and don't look back, thanks Jim for your thorough and thoughtful comments on why you think HIMX is dead. While many analyst remain positive on PXLW and feel it has all the upward growth potential. Are these analyst creating yet another HIMX rise and fall scenario?

    Here you will find the current key statistics used to evaluate HIMX finance.yahoo.com/q/ks and PXLW finance.yahoo.com/q/ks Here you will also find the industry sector averages for additional comparison biz.yahoo.com/p/833conameu.html

    Let's start by comparing the TTM (trailing twelve month) P/E ratio. The Semiconductor I/C sector average is currently 27.9, Himax has a TTM P/E of 16.41 and PXLW doesn't have one because they have negative earning per share (NYSEARCA:EPS). So clearly we can see Himax is trailing the industry average and PXLW does not have a past EPS history to evaluate.

    Next let's compare the 2015 estimate of the forward P/E. Himax is currently at 11.40 versus PXLW at $19.57.

    Now we move on to PEG (price to earnings growth) en.wikipedia.org/wiki/PEG_ratio. PEG is often used to determine the value of a company taking into consideration the forward growth. HIMX has a PEG 5 year forward of 0.35 finance.yahoo.com/q/ks vs PXLW of 3.71 finance.yahoo.com/q/ks A number less than 1 represents an undervalued company and Himax is nearly 3x below 1 while PXLW is 2.4X more.

    Another key analysis is the P/S (price to sales) that represents how much Wall Street values every dollar of the company's sales. www.investopedia.com/articles/fundamental/03/032603.asp Himax has a current TTM P/S of 1.32 and PXLW is 3.71. Once again, Himax represents a more realistic valuation.

    One last fundamental that we will look at is the P/B (price to book) ratio. P/B ratios of less than 3 indicate that a company is currently undervalued anything less than 1 investors should be aware that there could be some fundamental issues with the company and it would be best to look at other indicators prior to investing. Higher P/B ratios indicate that a company could be overvalued and represent a bad investment. HIMX has a current P/B ratio of 2.24 and PXLW is 10.54.

    By taking a quick 30,000 foot view of the companies being evaluated, investors are able to take careful consideration prior to entering a position. This quick analysis shows that PXLW could face a future downward adjustment to account for their fundamentals while HIMX is currently undervalued and could easily support a stronger price per share.

    Investors should ask themselves, which fundamentals support the stock that should have the $8.50 PPS?

    Invest wisely and make sure you do your own due diligence.

    I entered a position with Himax on June 2, 2014 and am long with no intention of selling out within the next year.

    Disclosure: The author is long HIMX.

    Stocks: HIMX
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    I am long HIMX and will add more now the price has come down.
    17 Jul 2014, 06:29 AM Reply Like
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