MagnaChip Semiconductor Corporation (NYSE:MX), is a USD$339.68M small-cap, which operates in the tech hardware industry based in Luxembourg. As various enterprises look to technology to enable their own transformations, the opportunities for technology companies have widened extensively. Tech analysts are forecasting for the entire hardware tech industry, a positive double-digit growth of 14.71% in the upcoming year . Below, I will examine the sector growth prospects, as well as evaluate whether MagnaChip Semiconductor is lagging or leading in the industry. View our latest analysis for MagnaChip Semiconductor
What’s the catalyst for MagnaChip Semiconductor’s sector growth?
US-based mega-competitors have been, and continue to be, the key drivers of industry growth. Many tech companies are repositioning themselves by focusing on high-growth areas such as IBM’s artificial intelligence play in Watson and Adobe’s shift to marketing its product for cloud computing. In the previous year, the industry saw growth in the teens, beating the US market growth of 10.76%. MagnaChip Semiconductor lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its tech hardware peers. As the company trails the rest of the industry in terms of growth, MagnaChip Semiconductor may also be a cheaper stock relative to its peers.
Is MagnaChip Semiconductor and the sector relatively cheap?
The tech hardware sector’s PE is currently hovering around 20x, relatively similar to the rest of the US stock market PE of 20x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 8.36% compared to the market’s 10.46%, potentially indicative of past headwinds. Since MagnaChip Semiconductor’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge MagnaChip Semiconductor’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? MagnaChip Semiconductor has been a tech industry laggard in the past year. If your initial investment thesis is around the growth prospects of MagnaChip Semiconductor, there are other tech companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how MagnaChip Semiconductor fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If MagnaChip Semiconductor has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its tech peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at MagnaChip Semiconductor’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into MagnaChip Semiconductor’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other tech stocks instead? Use our free playform to see my list of over 1000 other tech companies trading on the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.