It was a disappointing year for Himax Technologies (HIMX, Financial) in 2016. The stock plunged more than 25% due mainly to the downgrade rating of Mizuho Securities from buy to neutral. Currently, the stock trades at $5.46, signifying a new 52-week low. On the bright side, it is a good time for investors to initiate a position in the stock since long-term prospects still look optimistic.
In third-quarter 2016, the company surpassed analyst estimates in terms of both earnings and revenue. Throughout the starting three quarters of 2016, the company’s revenue surged at an average of 17%.
Himax’s upward movement started in 2013 when Google decided to invest in the company and the stock reached an all-time high of $14.96 per share. After reaching an all-time high, the company continue to face numerous ups and downs.
2017 looks promising for Himax however, as the company is aggressively focusing on internet of things (IoT) as well as virtual reality and augmented reality. Both markets are anticipated to rapidly rise over the next few years.
Currently, the company supplies liquid crystal on silicon (LCoS) to Microsoft (MSFT, Financial), Lumus, Lenovo (HKSE:0992, Financial) and several other companies. Microsoft uses LCoS for its new AR device, Hololens. The company also supplies the LCD timing controller integrated chip for Oculus Rift models developed by Facebook (FB, Financial).
The adoption of VR and AR devices is still in its infancy, but the good game development for the platform will certainly boost demand for these devices in the years ahead. Currently, several video game publishers are developing games based on virtual reality. Moreover, Sony Corp. (SNE, Financial) recently launched its new PlayStation VR headset. Together, these developments suggest there is a lot more to come in the imminent years.
Apart from this, Himax’s sales have increased at a healthy rate since the middle of 2015. Although strong sales from China are the primary factor behind the company’s growth, sales from other parts of the world indicate there is a sturdy demand for the company’s products.
Summing up
Himax Technologies is off to a disappointing start this year, which represents a good buying opportunity for long-term investors. The company has ongoing contracts with Microsoft, Facebook and others to manufacture and ship different components of their VR and AR devices.
Considering the positive outlook for virtual and augmented reality in the coming years, Himax is well poised to benefit from the trend. As a result, Himax Technologies is a strong buy at its current market price.
Disclosure: No position in the stocks mentioned in this article.
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