Does Himax Deserve the 66x Earnings Multiple?HIMX) is a Taiwanese fabless expert semiconductor company that is well suited for definite growth markets, such as augmented and virtual reality. As a matter of fact, the company’s products can be categorized into three types, which relates to the three divisions including Himax Technologies, Himax Display, and Himax Imaging.
The company has been witnessing slow growth as evident by the result of the last quarter. Overall Q1 revenue signified a sequential growth of 1.3 percent and a y-o-y surge of an inadequate 0.7 percent, which clearly indicates that the company is struggling to grow.
The company’s management anticipates Q2 revenue to grow in the range of 7.5 percent to 12.5 percent sequentially, which is massive considering all the recent weakness.
Himax accounts for the third largest supplier in the display driver market, behind Samsung and Novatek that holds 25 percent and 18 percent market share, respectively. At present stage, the market for large sized LCD TVs is more or less drenched. Conversely, the same is not the case while considering the developing world and this signifies that there are still legitimately huge growth opportunities in the driver market for large sized panels.
Currently, Himax Technologies holds a leading position in the medium and small sized panels. But, the company is poised to gain huge advantages from resolution migration, a shift to AMOLED panels. Apart from this, there are substantial prospects in the automotive market, as cars are becoming more advanced and are being fitted with bigger and higher resolution displays.
In addition, it is highly likely that some of the company’s technology will be used by Microsoft for its Hololens augmented reality headset. Himax’s technology is already used by Google in its first version of Google Glass, and Google is further planning to use Himax’s components for Google Glass version 2.0 as well. All things considered, I expect Himax Technologies to start reporting strong revenue growth in the upcoming quarters, thereby justifying its growth-stock valuation.
Himax Technologies is currently at 62x trailing earnings. However, the stock’s forward P/E stands at 18, which indicates that analysts are expecting strong earnings growth going forward. Himax should easily grow into its current valuation in the next few quarters.
Moving forward, the company’s growing presence in the augmented reality and virtual reality space should drive long-term growth, which is why I think the stock deserves the premium. Hence, I think Himax is a good buy at current levels.
Published on Aug 1, 2016By Akshansh Gandhi