Semtech Corporation (NASDAQ:SMTC): Is It A Good Long Term Opportunity?
The latest earnings update Semtech Corporation (NASDAQ:SMTC) released in January 2019 indicated that the company gained from a strong tailwind, eventuating to a high double-digit earnings growth of 73%. Below is a brief commentary on my key takeaways on how market analysts predict Semtech's earnings growth trajectory over the next few years and whether the future looks even brighter than the past. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.
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Analysts' expectations for next year seems rather muted, with earnings rising by a single digit 9.0%. The growth outlook in the following year seems much more optimistic with rates reaching double digit 63% compared to today’s earnings, and finally hitting US$137m by 2022.
While it’s useful to be aware of the rate of growth year by year relative to today’s level, it may be more insightful to analyze the rate at which the business is rising or falling on average every year. The benefit of this method is that we can get a better picture of the direction of Semtech's earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To compute this rate, I put a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 24%. This means, we can expect Semtech will grow its earnings by 24% every year for the next few years.
Next Steps:
For Semtech, there are three fundamental aspects you should look at:
Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Valuation: What is SMTC worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SMTC is currently mispriced by the market.
Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of SMTC? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
