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I Know First Research
I Know First Research
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Wearable Devices Market Makes Himax Technologies A Good Value

April 13, 2015 | About:

Himax Technologies, Inc. (NASDAQ:HIMX) is a fabless semiconductor provider with world leading visual imaging processing technologies. After undergoing a successful transformation in 2012, the company was able to post revenues of $227.2 million, its highest quarterly revenue since the same quarter four years earlier, and full year revenue of $840.5 million, an increase of 9.1% year-over-year. Besides strong revenue, the company was also able to report strong profits and earnings per share for the quarter. The results showed that Himax had successfully become a more diversified company with market leading single-chip solutions.

While investors might have expected the positive news to cause the stock price to surge, this has not been the case. In fact, the stock price has fallen almost 40% in the last year alone, including 18.5% in the last month. Light guidance included in the earnings report, based off of demand concerns from China’s mobile market, has played a role in the falling stock price, as has a downgrade of the stock by Bank of America Merrill Lynch. With the stock price trading at a discounted price, now is a great time to add this stock to a long-term portfolio. The company is currently a good value investment because of the wearable devices market, its strong balance sheet, and its emphasis on returning value to shareholders.

Wearable Devices Market

The 2015 calendar year is set to be a big one in the wearable devices market. Google has already announced that they will be releasing a new version of their Google Glass, most likely with a more reasonable price. Facebook and Microsoft have joined in, announcing their own versions of virtual reality devices that are set to be released this year. Microsoft’s version, titled HoloLens, could possibly be released in July, and will most likely be available for Christmas this year.

These devices are just the start of what is set to be part of an exploding industry. The virtual reality and augmented reality headsets could prove to be extremely popular among consumers, as devices like these have been seen as the future of technology for some time. Himax is in a great position as a technological leader to take full advantage of this trend, as the company already has a partnership with Google. With the best LCoS display on the market, Microsoft and Facebook will also most likely use Himax’s product, providing a potential huge new growth opportunity to the company, along with its already promising performance.

Himax is rumored to get $14-$15 per unit of Google Glass sales. Assuming that the company will get similar compensation for other sets of comparable wearable devices, moderate sales of these products during the holiday season and next year mean that the current price of Himax, currently trading at $6.34 at the time of this writing, clearly undervalues the company. If the technology takes off like it has the potential to, the stock’s value could increase more than 100%, not even taking into account how the current business is undervalued in itself.

Solid Financials

The company also has an extremely strong balance sheet that makes the company a safe bet for the long term. Himax has impressively stable gross margins, remaining over 23% for the last three years. The company has kept its operating expenses under control in recent years, although it was slightly higher in 2014. This should translate into opportunities for 2015, leading to higher overall revenue for the fiscal year.

Its cash positions is also quite remarkable, as it is at its highest since the second quarter of 2009, well before the company transitioned to focus more on new technologies such as wearable devices. The cash, cash equivalents, and marketable securities were $187.8 million at the end of the year, up more than $40 million from just a quarter earlier. This will provide the company the flexibility needed to take advantage of the growth markets it has successfully positioned itself in. Further, it had $130.2 million in restricted cash at the end of the previous quarter, used to guarantee the company’s short-term loan of the same amount. While positioned well for growth markets, the company has remarkably been able to remain completely debt free.

On top of its outstanding balance sheet, the company also has a notable track record of returning value to its shareholders. Since the company offered its IPO in 2007, it has always offered an annual dividend yield in excess of 3%. With a strong financial performance and solid balance sheet, this trend is sure to continue this year, most likely offering another high payout ratio once again demonstrating its commitment to investors. Himax has also conducted multiple share buyback programs since it went public, initiating four such programs which have totaled approximately $158 million.

Algorithmic Analysis

I Know First supplies financial services, mainly through stock forecasts via their predictive algorithm. The algorithm incorporates a 15-year database, and utilizes it to predict the flow of money across 2000 markets. The algorithm has more data to forecast within the long term and, naturally, outputs a more accurate predication in that time frame. Having said that, intraday traders, along with short-term players, will also benefit by taking the algorithmic perspective into consideration.

The self-learning algorithm uses artificial inelegance, predictive models based on artificial neural networks, and genetic algorithms to predict money movements within various markets. The algorithm produces a forecast with a signal and a predictability indicator. The signal is the number in the middle of the box. The predictability is the number at the bottom of the box. At the top, a specific asset is identified. This format is consistent across all predictions. The middle number is indicative of strength and direction, not a price target. The bottom number, the predictability, signifies a confidence level.

Having explained how I Know First’s algorithm works, it is worthwhile to see if the algorithm agrees with the bullish fundamental analysis of the company. The figure below includes the three-month and one-year forecasts for Himax Technologies from April 12th, 2015. In both forecasts, the company has an incredibly strong positive signal, indicating the algorithm is bullish for the stock.

Figure 1

This forecast is in agreement with the fundamental analysis of how undervalued Himax Technologies is at this point in time. These signals are exceptionally strong and are among the top picks for both time horizons, meaning the algorithm believes that the stock price will move much higher in the future. This makes sense, as it is currently vastly undervalued due to potential explosive growth in the wearable market and its incredibly solid balance sheet. Investors should take advantage and add this to their long-term portfolios.

About the author:

I Know First Research
I Know First is a financial services firm that utilizes an advanced self-learning algorithm to analyze, model and predict the stock market.

Co-Founder Dr. Lipa Roitman, a scientist, with over 20 years of experience created the market prediction system. The algorithm is based on artificial intelligence, machine learning and incorporates elements of artificial neural networks as well as genetic algorithms to model and predict the flow of money between 2,000 markets from 3-days to a year: stocks, ETF's, world indices, gold, currencies, interest rates, and commodities.

The algorithm outputs a predicted trend as a number, which in turn, is used by traders to identify when to enter and exit the market. While forecasts can be used for intra-day trading, the predictability tends to become stronger over longer time-horizons such as the 1-month, 3-month and 1-year forecasts.

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