Vishay Intertechnology currently trades at $15.15 per share and has shown little upside over the past six months, posting a small loss of 3.7%. The stock also fell short of the S&P 500’s 13.1% gain during that period.
Is there a buying opportunity in Vishay Intertechnology, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free for active Edge members.
Why Do We Think Vishay Intertechnology Will Underperform?
We're sitting this one out for now. Here are three reasons why VSH doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall 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 mediocre 4.1% compounded annual growth rate. This fell short of our benchmark for the semiconductor sector. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
2. Low Gross Margin Reveals Weak Structural Profitability
Gross profit margin is a key metric to track because it shows how much money a semiconductor company gets to keep after paying for its raw materials, manufacturing, and other input costs.
Vishay Intertechnology’s gross margin is one of the worst in the semiconductor industry, signaling it operates in a competitive market and lacks pricing power. As you can see below, it averaged a 21.1% gross margin over the last two years. That means Vishay Intertechnology paid its suppliers a lot of money ($78.88 for every $100 in revenue) to run its business. 
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 16 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 7.3%.
Final Judgment
Vishay Intertechnology falls short of our quality standards. With its shares trailing the market in recent months, the stock trades at 29.8× forward P/E (or $15.15 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.
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