Over the past six months, Vishay Intertechnology’s stock price fell to $15.90. Shareholders have lost 9.7% of their capital, disappointing when considering the S&P 500 was flat. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

Is there a buying opportunity in Vishay Intertechnology, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Do We Think Vishay Intertechnology Will Underperform?

Despite the more favorable entry price, we're cautious about Vishay Intertechnology. Here are three reasons why we avoid VSH and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Vishay Intertechnology grew its sales at a sluggish 2.8% compounded annual growth rate. This fell short of our benchmarks. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

2. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Vishay Intertechnology, its EPS declined by 25.5% annually over the last five years while its revenue grew by 2.8%. This tells us the company became less profitable on a per-share basis as it expanded.

3. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Vishay Intertechnology’s margin dropped by 15.4 percentage points over the last five years. Almost any movement in the wrong direction is undesirable because it is already burning cash. If the trend continues, it could signal it’s becoming a more capital-intensive business. Vishay Intertechnology’s free cash flow margin for the trailing 12 months was negative 7.4%.

Final Judgment

Vishay Intertechnology doesn’t pass our quality test. Following the recent decline, the stock trades at 7.7× forward EV-to-EBITDA (or $15.90 per share). At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now. We’d suggest looking at our favorite semiconductor picks and shovels play.

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