Allegro Microsystems Inc. (ALGM - Get Rating) is a global designer, developer, fabless manufacturer and marketer of sensor ICs and application-specific analog power ICs enabling the important emerging technologies in the automotive and industrial markets.

The company has been benefiting from the COVID recovery as sales for its magnetic sensor ICs reached an all-time record in the most recent quarter, growing 7% sequentially, and 16% year over year. Their power ICs were up 5% sequentially and 36% year over year, also achieving record revenue levels.

ALGM has a current ratio of 3.7 indicating it has more than enough liquidity to handle short-term obligations. Although the company’s net profit margin of 3% is low. Both earnings and revenue increased sequentially in the most recent quarter. Analysts forecast 20% sales growth and 41.3% earnings growth for the year.

The stock appears overvalued with a trailing P/E of 274.4 and a forward P/E of 42.02. The stock started trending down in February and has shown mixed performance since then as you can see in the chart below.

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Take a look at the 1-year chart of ALGM below with the added notations:

  Chart of ALGM provided by TradingView

Over the past year, ALGM has formed an important level to watch at the $28 (red) mark, as that level has provided both support and resistance. The stock just made it back up to the level once again, and a break through it could open the door to much higher prices.

ALGM has a key level at $28. A trader could enter a long position on a break above that level with a stop placed below it. However, if traders are bearish on the stock, a short trade could be made on another test of the $28 resistance.

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ALGM shares were unchanged in premarket trading Tuesday. Year-to-date, ALGM has gained 4.50%, versus a 14.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Christian Tharp

I am an expert stock market coach having helped over 4000 beginner and advanced traders & investors from around the world take control of their financial futures. I also write stock market related articles for the Adam Mesh Trading Group and Yolo Publishing. More...

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