Fabless semiconductor company Himax Technologies, Inc.’s (HIMX - Get Rating) shares have more than tripled since hitting their 52-week low of $2.91 on May 27. Since HIMX’s chips are used in laptops, car navigation systems and augmented reality (AR) devices, the company saw solid demand during the pandemic, and its shares have gained 130.8% over the past six months to close yesterday’s trading session at $11.17. However, we think HIMX is still trading at a reasonable valuation considering its impressive near-term growth prospects.

In terms of forward non-GAAP P/E ratio, HIMX’s 6.64x is 72.5% lower than the 24.14x industry average. In terms of forward EV/S and P/S, its 1.31x and 1.37x, respectively, are lower than the 4.11x and 4.19x industry averages.

The rising demand for semiconductors has created a huge shortage of chips.  And because  HIMX is now ramping up its production, it should benefit significantly in the near-term.

Click here to checkout our Semiconductor Industry Report for 2021

Here are the factors that we think could influence HIMX’s performance in the coming months:

Several Positive Developments

On May 19, HIMX unveiled its latest liquid crystal on silicon (LCoS) technology for two key application platforms—AR Head-Up Display and Wavelength Selective Switch. Together with CM Visual Technology Corp., the company launched its microstructure optical film—Omniwide Film—in April. It is  used for resolving optical display performance challenges in certain types of display panel applications. These innovative solutions are expected to provide HIMX  an edge over its peers and a  larger market share in the display space.

Robust Financials

With strong demand across all major business segments, HIMX’s top line climbed 67.4% year-over-year to $309 million for the first quarter, ended March 31, 2021. Its revenue from large display drivers increased 13.9% year-over-year to $69.90 million, while its revenue from the smartphone segment increased 256.4% year-over-year to $80.20 million.

The company’s operating income for the quarter came in at $84.80 million, representing  a 1,724.8% year-over-year rise. Its net profit was  $66.90 million, up 1,930.8% year-over-year. Also, its EPS increased 1,915.8% year-over-year to $0.38.

Favorable Analyst Estimates

Analysts expect HIMX’s revenue to increase 69.1% for the current quarter, ending June 30, 2021, and 41.4% in  2021. Its EPS is expected to grow 2,900% in the current quarter, 285.7% for the quarter ending September 30,  and 316.7% in  2021. Furthermore,  its EPS is expected to grow at an 84.7% rate per annum over the next five years.

POWR Ratings Show Promise

HIMX has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. HIMX has an A grade for Value, which is in sync with its lower-than-industry valuation ratios.

It has an A grade for Growth also, which is  consistent with analysts’ expectations that its revenue and EPS will increase significantly in the coming quarters. The stock has an A grade for Sentiment, which is justified given the favorable analyst sentiment.

HIMX is ranked #11 of 98 stocks in the B-rated Semiconductor & Wireless Chip industry. Click here to access HIMX’s ratings for Momentum, Quality and Stability.

If you’re looking for other top-rated stocks in the Semiconductor & Wireless Chip industry, with an Overall POWR Rating of A or B, you can access them here.

Bottom Line

HIMX seems to be a great pick in the semiconductor space given its solid financials and favorable industry tailwinds. With more than 3,000 patents on technologies across three continents, the company has retained its position as a leading semiconductor solution provider. Given its discounted valuation, we think it would be wise to buy the stock now.

Click here to checkout our Semiconductor Industry Report for 2021

HIMX shares were trading at $10.71 per share on Thursday morning, down $0.46 (-4.12%). Year-to-date, HIMX has gained 44.93%, versus a 10.83% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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