Semiconductors are the core infrastructure powering the Information Age. The amount of data we ingest is also increasing exponentially, leading to elevated demand for chips with more processing power. This secular trend bodes well for the industry, which has posted a six-month gain of 83.8% and beaten the S&P 500 by 76.3 percentage points.
Although these businesses have produced results lately, investors should tread carefully as not all companies are equipped for the next technological innovation. Taking that into account, here are two semiconductor stocks boasting durable advantages and one best left ignored.
One Semiconductor Stock to Sell:
Amtech (ASYS)
Market Cap: $333.4 million
Focusing on the silicon carbide and power semiconductor sectors, Amtech Systems (NASDAQ: ASYS) produces the machinery and related chemicals needed for manufacturing semiconductors.
Why Is ASYS Not Exciting?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 14.9% annually over the last two years
- Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
- ROIC of -0.8% reflects management’s challenges in identifying attractive investment opportunities, and its falling returns suggest its earlier profit pools are drying up
Amtech’s stock price of $18.88 implies a valuation ratio of 3.7x trailing 12-month price-to-sales. Dive into our free research report to see why there are better opportunities than ASYS.
Two Semiconductor Stocks to Watch:
MACOM (MTSI)
Market Cap: $27.37 billion
Founded in the 1950s as Microwave Associates, a communications supplier to the US Army Signal Corp, today MACOM Technology Solutions (NASDAQ: MTSI) is a provider of analog chips used in optical, wireless, and satellite networks.
Why Could MTSI Be a Winner?
- Annual revenue growth of 29.8% over the last two years was superb and indicates its market share increased during this cycle
- Sales outlook for the upcoming 12 months calls for 36.5% growth, an acceleration from its two-year trend
- Earnings per share have comfortably outperformed the peer group average over the last five years, increasing by 18.4% annually
At $357.70 per share, MACOM trades at 58.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Nova (NVMI)
Market Cap: $16.35 billion
Headquartered in Israel, Nova (NASDAQ: NVMI) is a provider of quality control systems used in semiconductor manufacturing.
Why Is NVMI a Good Business?
- Annual revenue growth of 30.8% over the last two years was superb and indicates its market share increased during this cycle
- Healthy operating margin of 28.8% shows it’s a well-run company with efficient processes, and it turbocharged its profits by achieving some fixed cost leverage
- Earnings per share grew by 30.9% annually over the last five years, massively outpacing its peers
Nova is trading at $511.15 per share, or 45x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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