Himax Technologies (HIMX, Financial) has dipped severely over the last few trading sessions as the stock has been hit by multiple valuation-driven downgrades. While Himax was overvalued at over $10, the stock has become a great pick now. The selloff is likely overdone, and long-term investors should see it as a buying opportunity.
Higher volume orders is a plus for Himax
Himax has carved out a niche in the past 10 years building display drivers to power monitors for numerous things such as TVs, smartphones, etc. In 2015, the company’s small and midsized display business was hurt mainly due to the declining demand for smartphones and tablets.
However, the company has swiftly recovered and established new outlets for its hardware. Throughout the prior quarter, the company’s display for the automotive industry showed the sturdiest growth. China offers a lot of opportunities for the company, as the Internet of Things trend is gradually rising in China.
Moreover, smartphone sales are again gaining traction in China, and numerous Chinese vehicles are using a smart screen in the dash. Not only that, but smart TV as well as high-definition TV sales are also gaining momentum.
On the other hand, the company also has new hardware besides display drivers. Display drivers still accounted for approximately 79% of sales in the previous quarter, but other segments that are gaining momentum swiftly are timing and touch display controller, AR-VR and image sensor.
Furthermore, the company said that it was not able to keep up with new orders; therefore, it is now investing to expand operations so as to meet the higher volume demand.
Why China matters
Himax Technologies is well positioned to gain benefits from the gradually rising adoption of new TV technology and AMOLED smartphone displays. Moreover, the company’s management pointed out that both these things will continue bringing growth this year.
Apart from the advantages gained from its leading market share in China and in 4K TV, the company is also leading the control in new technology areas like 8K TV by operating with its Korean as well as Chinese panel customers.
The company is increasing revenue across all of its divisions and has a lot of room for additional growth in AR and new display technologies. By adding all of these, it seems like the company has some bright days in the coming years.
Conclusion
Himax Technologies is a great stock for long-term investors, and the recent pullback makes it even more attractive. Although at over 40x trailing earnings, Himax may seem a bit expensive, but I think long-term investors should capitalize on the pullback and initiate a position.
Disclosure: I don't hold a position in the stock mentioned in the article.
Start a free seven-day trial of Premium Membership to GuruFocus.
