The rising demand for semiconductor chips from several industries, such as electric vehicles (EVs) and consumer electronics, has since last year created a huge imbalance between supply and demand. The resulting increase in prices has been beneficial to the semiconductor industry. Consequently, semiconductor stocks are attracting investors’ attention. This is evident in the SPDR S&P Semiconductor ETF’s (XSD) 70.8% gains over the past year versus the SPDR S&P 500 Trust ETF’s (SPY) 38.6% returns.
Even though semiconductor manufacturers are increasing production to meet the high demand, with support from governments, the supply shortage may not end anytime soon. An increasing demand for advanced devices that feature a wide range of innovative technologies, such as artificial intelligence (AI), machine learning (ML), and internet of things (IoT), should keep the demand for semiconductors at higher levels than the supply for the foreseeable future. According to a Fortune Business Insights report, the global semiconductor market is projected to grow at a 8.6% CAGR between 2021 – 2028.
Given this backdrop, we think it could be wise to bet on EMCORE Corporation (EMKR) and inTEST Corporation (INTT). These two companies are not making daily headlines, but could nonetheless capitalize on the industry tailwinds.
EMCORE Corporation (EMKR)
Founded in 1984, EMKR, together with its subsidiaries, provides advanced mixed-signal optic products internationally. It provides high-power gain chip, photodiode, data center chip and GPON fiber-to-the-premises (FTTP) products for the telecommunication markets. The company also offers cable television (CATV) products and sells its products through a direct sales force, application engineers and distributors.
On April 28, EMKR announced the introduction of its new SDI170 Quartz MEMS (Micro-Electromechanical Systems) Tactical Grade Inertial Measurement Unit (IMU). The product could further increase the company’s sales.
EMKR’s revenue increased 15% year-over-year to $38.4 million for the second quarter, ended March 31. Its adjusted EBITDA grew 56.8% year-over-year to $6.9 million, while its non-GAAP net income increased 73.5% year-over-year to $5.9 million. The company’s non-GAAP EPS increased 54.5% year-over-year to $0.17.
Analysts expect EMKR’s EPS to come in at $0.17 for the quarter ending June 30, which represents a 666.7% year-over-year increase. It surpassed the consensus EPS estimates in each of the trailing four quarters. The company’s revenue is expected to increase 41.3% year-over-year to $155.58 million in 2021. The stock has surged 207.2% over the past year to close yesterday’s trading session at $9.37.
EMKR’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Sentiment, and a B grade for Growth. Within the B-rated Semiconductor & Wireless Chip industry, EMKR is ranked #32 of 98 stocks. To see the additional POWR Ratings for EMKR (Quality, Value, Stability and Momentum), click here.
inTEST Corporation (INTT)
INTT is a supplier of test and process solutions for manufacturing and testing in the automotive, semiconductor, telecommunications and various other industries worldwide. It operates in two product segments—Thermal and Electromechanical Semiconductor. The company offers ThermoStream products, Thermal Chambers, Cobal, and LS series manipulators.
INTT announced on February 16 that it continues to see strong growth in its automotive and electric vehicle (EV) market penetration. Nick Grant, inTEST’s President and CEO said, “We are pleased with the market acceptance and adoption of our technology by leading EV manufacturers.”
INTT’s revenue climbed 75% year-over-year to $19.56 million for the quarter ended March 31. Its operating income was $2.58 million versus a $1.36 million operating loss in the prior-year period. Its net earnings came in at $2.21 million compared to a $1.14 million net loss in the year-ago period. Also, the company’s EPS was $0.21 compared to a $0.11 loss per share in the prior-year period.
For 2021, analysts expect INTT’s EPS to increase 2,866.7% year-over-year to $0.89. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Its revenue is expected to be $20.34 million for the quarter ending June 30, 2021, which represents a 53.2% year-over-year increase. The stock has surged 326.9% over the past year to close yesterday’s trading session at $14.60.
INTT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has an A grade for Growth and Sentiment, and a B grade for momentum.
We have also graded INTT for Value, Stability and Quality. Click here to access all INTT’s ratings. INTT is ranked #16 in the same industry.
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EMKR shares were trading at $9.56 per share on Friday morning, up $0.19 (+2.03%). Year-to-date, EMKR has gained 75.41%, versus a 13.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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