Has Himax Technologies Rallied Too Far?

I have been a Himax Technologies (HIMX) bull for a very long time. I first recommended buying the stock almost 18 months ago when it was trading at under $6.5. Since my initial recommendation, Himax has been pretty range bound. However, due to the recent rally, Himax is now up a little over 70% in the reference time period.

Despite the range-bound nature of Himax, the stock has gained considerably since my initial recommendation.
The company released its Q1 quarterly report today that saw the shares move higher. The results were mixed as Himax reported EPS of $0.08, beating the analysts’ estimate of $0.07. On the revenues front, Himax just fell shy as its sales grew 0.7% year over year to $180.32 million, missing the consensus by $1 million.

However, Himax’s guidance for Q2 was strong, which is why shares are moving higher. Himax sees Q2 EPS of $0.09-$0.11, ahead of $0.08 consensus.  On the sales front, Himax expects Q2 revenue of $194 million-$203 million, as compared to the consensus of $194.75 million.

While Himax’s shares have moved higher after the results, I think it is now time for investors to book some profits. After 70% gains, I think investors should consider taking profits off the table and watch the stock to pullback from the sidelines so as to initiate a new entry point. Given the range-bound nature of Himax, I won’t be surprised to see the stock pullback in the next few months.

Valuation is too rich

While I still think Himax is a great company, the stock is currently too expensive for my liking, especially given its slow year over year growth. As of writing, Himax is trading at over 73x trailing earnings and has a P/S ratio of 2.60.

That being said, Himax is slowly expanding its wings over the Virtual Reality and Augmented Reality market and it will lead to stronger revenue growth going forward. However, the Virtual Reality and Augmented Reality market are still in nascent stages of development and will take at least a few more years to become mainstream.

While I do not doubt the fact that Himax will be a key player in the VR and AR space, I think the stock is likely to pullback about 10%-15% in the coming weeks.


Given Himax’s rich valuation and range-bound nature, I think the stock is likely to pull back about 10%-15% in the coming weeks. Since the stock is up over 70% since my initial recommendation, I think investors should book profits and watch the stock from the sidelines.
Published on May 12, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

Posted in ...