With a notable daily gain of 9.49% and a three-month gain of 40.44%, Semtech Corp (SMTC, Financial) has caught the attention of investors. However, with a Loss Per Share of 17.04, questions arise about its valuation. Is Semtech modestly undervalued as suggested by the GuruFocus valuation? This article delves into the company's financials and market position to provide a clear analysis for investors.
Company Introduction
Semtech Corp is a key player in the design, development, and marketing of semiconductors and related products for IoT applications. With a focus on four main segments—Signal Integrity, Advanced Protection and Sensing, IoT System, and IoT Connected Services—Semtech has established a significant presence, especially in the Asia Pacific region. A comparison between the current stock price of $30.1 and the GF Value of $38.07 suggests that the stock might be trading below its fair value, hinting at a potential undervaluation.
Summarize GF Value
The GF Value is a unique measure of intrinsic value that incorporates historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. For Semtech (SMTC, Financial), the GF Value Line suggests the stock is modestly undervalued. With a market cap of $1.90 billion, the stock's current price of $30.1 per share may present an attractive opportunity for investors seeking value.
Given this relative undervaluation, Semtech's stock could potentially offer a higher long-term return compared to its business growth. This assertion is based on the principle that undervalued stocks tend to correct over time, aligning closer to their intrinsic value.
Financial Strength
Investing in companies with robust financial strength is crucial to mitigate the risk of capital loss. Semtech's cash-to-debt ratio of 0.09 places it lower than 95.56% of its peers in the Semiconductors industry. This low ranking indicates a weaker balance sheet, which is reflected in GuruFocus's financial strength rating of 2 out of 10 for the company.
Profitability and Growth
Profitability is a critical aspect of a company's financial health. Semtech has maintained profitability for 9 out of the past 10 years, with a revenue of $868.80 million over the past twelve months. Despite this, the company's operating margin of -15.69% is a concern, ranking lower than 80.37% of its industry counterparts. Even so, GuruFocus assigns a profitability rank of 7 out of 10, indicating a fair level of profitability.
Growth is equally important for long-term value creation. Semtech's average annual revenue growth of 14.6% is commendable, placing it above 65.81% of its industry peers. However, its 3-year average EBITDA growth rate is 0%, a stark contrast to its revenue growth and an area for potential improvement.
ROIC vs. WACC
Assessing a company's value creation can also be done by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). A higher ROIC than WACC indicates efficient value generation for shareholders. For Semtech, the past 12 months have seen a ROIC of -8.29% and a WACC of 11.75%, suggesting the company is not currently creating shareholder value.
Conclusion
In conclusion, Semtech (SMTC, Financial) appears to be modestly undervalued based on the GF Value. While the company has demonstrated fair profitability, its financial condition raises concerns, and its growth needs to be viewed critically. Investors interested in Semtech should conduct further research, which can be started by exploring the company's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
