Semiconductors are the picks and shovels of modern technology. But they’re also susceptible to economic fluctuations as chip demand will ebb and flow with capital spending. Unfortunately, it’s unclear if we’re primed for another upswing as the industry’s 1.7% return over the past six months has lagged the S&P 500 by 2.8 percentage points.
Investors should tread carefully as timing cyclical companies is a challenging task, and any misstep can have you catching a falling knife. Keeping that in mind, here are three semiconductor stocks that may face trouble.
Qorvo (QRVO)
Market Cap: $8.17 billion
Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.
Why Should You Sell QRVO?
- Annual revenue growth of 2.8% over the last five years was below our standards for the semiconductor sector
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 20 percentage points
- 14.7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
At $87.06 per share, Qorvo trades at 15.9x forward P/E. Check out our free in-depth research report to learn more about why QRVO doesn’t pass our bar.
Power Integrations (POWI)
Market Cap: $3.02 billion
A leading supplier of parts for electronics such as home appliances, Power Integrations (NASDAQ: POWI) is a semiconductor designer and developer specializing in products used for high-voltage power conversion.
Why Are We Out on POWI?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 11.7 percentage points
- Earnings per share have contracted by 3.1% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
Power Integrations’s stock price of $56.38 implies a valuation ratio of 31.2x forward P/E. If you’re considering POWI for your portfolio, see our FREE research report to learn more.
Lattice Semiconductor (LSCC)
Market Cap: $7.14 billion
A global leader in its category, Lattice Semiconductor (NASDAQ: LSCC) is a semiconductor designer specializing in customer-programmable chips that enhance CPU performance for intensive tasks such as machine learning.
Why Is LSCC Not Exciting?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 16.1% annually over the last two years
- Efficiency has decreased over the last five years as its operating margin fell by 9.7 percentage points
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 4.5% annually
Lattice Semiconductor is trading at $52.30 per share, or 44.1x forward P/E. Read our free research report to see why you should think twice about including LSCC in your portfolio.
Stocks We Like More
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