Shares of Taiwanese fabless semiconductor company Himax Technologies (NASDAQ: HIMX) closed 10.9% higher on Thursday after it was reported that investment bank Roth Capital had upgraded the shares to buy.
Roth posited a $5 target price for Himax stock, implying the shares, which closed at $3.36, could still have another 50% or so rise ahead of them.
Image source: Getty Images.
What makes Roth so optimistic about Himax? After all, most analysts who follow the stock are predicting Himax will lose $0.01 a share this current quarter on weaker sales and lose another $0.01 next quarter. (Just as it lost ... $0.01 a share last quarter, as well.)
And yet, as the analyst explained, Himax is enjoying stronger semiconductor orders from smartphone and large display customers, and in particular, stronger orders for 3D sensing components. This, in the analyst's view, brightens the outlook for Himax in the near future.
What does the future hold for Himax investors? That's hard to say. With three-in-a-row unprofitable quarters forecast, most analysts expect Himax to post only breakeven earnings this year. Earnings could improve in 2020, however, with forecasts circling around $0.10 per share in profit. But even then, with Himax trading for $3.36 a share today, that would work out to a forward price-to-earnings ratio of more than 33, which is hardly cheap.
Topping off the bad news, Himax is already free cash flow negative over the past 12 months -- and hasn't generated a full year's worth of positive free cash flow since 2016. All things considered, I think if I owned Himax today, I'd view today's share-price surge as a propitious time to exit the stock and not as a signal that it's time to buy more.
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