I have been bullish on Himax Technologies (HIMX, Financial) for a long time now. I first wrote an article calling the stock a buy over 18 months ago. Since then, Himax has been range bound for most of the time. But patient investors have now been rewarded as Himax has finally broken out of its range and is trading near 52-week highs.
The stock has risen about 40% since I recommended buying it in 2014, and I am still bullish on the company’s prospects. I think Himax Technologies is still conservatively valued and can offer more upside, which is why I think investors should hold onto the stock.
Virtual reality
Virtual reality market is a rapidly growing space. Virtual and Augmented Reality markets are expected to be worth over $150 billion by 2020 and Himax Technologies stands to benefit from it. Himax Technologies has a contract with Oculus Rift to supply time controllers. The device recently hit the market and is priced at $599.
In addition, the company also stands to benefit from Google Goggles and has many other companies using its LCOS displays for their AR devices.
While Himax has not disclosed the names of its clients, investors can expect the sector to break out in the upcoming months, making Himax a great long-term pick. Himax Technologies is currently trading at a premium; however, I think the stock has tremendous upside potential due to its presence in the AR and VR space.
The company generated roughly $700 million in revenues last year, which puts its P/S ratio in the range of 3. In addition, the company’s trailing P/E ratio currently stands at over 80. However, the forward P/E of 25 shows analysts expect the company’s earnings to grow significantly.
While the stock looks overvalued, I think it still has more upside potential left. I don’t usually recommend buying stocks that are trading at such premium multiples, but Himax Technologies is an exception.
Conclusion
Due to the growth of the Virtual Reality and Augmented Reality market, I think Himax Technologies deserves the premium and can very easily grow into its current value. I have been bullish on the stock for a long time and I would still recommend investors to hold onto it. I think 2016 will be the breakout year for AR and VR, which in turn will be beneficial for Himax, making the stock a good pick.
Disclosure: The author doesn’t have any position in the stocks mentioned in the article.
