Photronics, Inc. (PLAB) is scheduled to reveal its fiscal fourth-quarter financial results on December 13. Wall Street anticipates the company to disclose earnings per share of $0.53, with revenue expectations reaching $224 million, reflecting a year-over-year growth of 6.5%.

That said, PLAB performed admirably in the third quarter, maintaining strong profit margins and generating significant cash flow. This strengthening of the balance sheet helped to skillfully navigate the difficulties presented by the industry downturn and support strategic expansion ambitions.

The long-term forecast for PLAB demand remains favorable owing to several secular factors, including persistent tendencies toward onshore semiconductor production in response to growing geopolitical threats and active design work for new devices. The company, being the largest merchant photomask maker globally, is strategically positioned to capitalize on these persistent trends.

Having said that, PLAB projects revenue for the fourth quarter to range from $222 million to $232 million and non-GAAP net income attributable to PLAB shareholders to range from $0.51 to $0.59 per share. Shares of PLAB have gained 6.1% over the past month and 24.6% year-to-date to close the last trading session at $20.88.

Here are the financial aspects of PLAB that could influence its performance in the near term:

Solid Last Reported Financials

PLAB’s revenues for the third quarter ended July 30, 2023, rose 1.9% year-over-year to $224.21 million. Its non-GAAP net income and non-GAAP EPS grew 9.7% and 8.5% year-over-year to $31.64 million and $0.51, respectively. In addition, as of July 30, 2023, the company’s cash and cash equivalents amounted to $448.48 million, compared to $380.83 million as of July 31, 2022.

Robust Growth Record

Over the past three years, PLAB’s revenue and EBITDA increased at a CAGR of 12.4% and 25.7%, respectively. Its net income and EPS grew at respective CAGRs of 47.1% and 50%. In addition, the company’s levered free cash flow rose at a 13.8% CAGR over the same time frame.

Positive Analyst Estimates

The consensus revenue estimate of $888.60 million for the fiscal year ending October 2023 reflects a 7.8% year-over-year improvement. Moreover, the company’s EPS for the current year is estimated to come in at $1.97, up 1.6% from the prior year. Furthermore, PLAB surpassed the consensus revenue and EPS estimates in three of four trailing quarters.

Discounted Valuation

In terms of forward non-GAAP P/E, PLAB is trading at 10.60x, 53.2% lower than the industry average of 22.64x. Its forward EV/Sales of 1.29x is 52.7% lower than the 2.73x industry average. Also, PLAB’s forward EV/EBITDA of 3.46x is 76.6% lower than the 14.75x industry average.

Higher-than-industry Profitability

PLAB’s trailing-12-month EBITDA margin of 37.43% is 304.7% higher than the industry average of 9.25%. Its trailing-12-month net income margin of 13.48% is 474.7% higher than the 2.35% industry average. Also, the stock’s trailing-12-month levered FCF margin of 11.01% compares to the 8.24% industry average.

POWR Ratings Show Sound Prospects

PLAB’s sound outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PLAB has an A grade for Momentum, which is justified by the stock trading above its 50-day and 200-day moving averages of $20.27 and $20.26, respectively.  

In addition, the stock has a B grade for Value, which syncs with its lower-than-industry valuation.

PLAB is ranked #6 in the 91-stock Semiconductor & Wireless Chip industry. Click here to access PLAB’s Growth, Quality, Stability, and Sentiment ratings.

Bottom Line

PLAB demonstrated notable prowess in the third quarter, skillfully navigating industry challenges and strategically positioning itself for growth. With a promising long-term outlook driven by secular factors and bolstered by robust financials and profitability, investing in PLAB now appears wise, given its cheap valuation.

How Does Photronics, Inc. (PLAB) Stack Up Against Its Peers?

While PLAB has an overall grade of B, equating to a Buy rating, you may also check out these better A (Strong Buy) stocks within the Semiconductor & Wireless Chip industry: STMicroelectronics N.V. (STM), ChipMOS TECHNOLOGIES INC. (IMOS) and Everspin Technologies, Inc. (MRAM). To explore more A-rated Semiconductor & Wireless Chip stocks, click here.

What To Do Next?

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PLAB shares were trading at $21.53 per share on Monday morning, up $0.65 (+3.11%). Year-to-date, PLAB has gained 27.93%, versus a 21.75% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...

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