Today we have a moderately speculative idea.: take shares in the industrial business Advanced Energy Industries (NASDAQ: AEIS), in order to make money on his growth.
Growth potential and validity: 14,5% behind 14 months excluding dividends; 39,5% behind 3 years excluding dividends; 10% per annum, taking into account dividends for 15 years.
Why stocks can go up: because there is a demand for the company's products and services.
How do we act: we take shares now by 84,47 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
AEIS produces solutions for powering complex electronics - they are needed as for the production of chips, and for solving applied technological problems: from temperature control and computing to medical and industrial applications.
According to the company's annual report, its revenue is divided into the following types:
- Semiconductor equipment - 43,2%.
- Industry and medicine - 22,1%.
- Cloud computing - 22,8%.
- Telecoms and networks — 11,9%.
AEIS revenue is also divided into segments:
- Goods - 91,59%. Segment gross margin — 37,06% from its proceeds.
- Services - 8,41%. Segment gross margin — 48,44% from its proceeds.
Revenue by country and region:
- North America - 48,6%, USA give 31,34% company revenue.
- Asian countries - 42,9%.
- Europe - 8,3%.
- Other countries — 0,2%.
Arguments in favor of the company
Fell down. The company's shares have fallen significantly over the past year.: from 117 $ in April 2021 to 84,47 $. We can pick them up waiting for the rebound.
Promising. All major markets, for which AEIS works, excellent prospects: she makes sophisticated electronics, which will be in demand both in the semiconductor industry due to the hype in this area and the growth of investments in the expansion of chip production, as well as in other industries, where high technology will play an increasingly important role.
Cheap. The company is not very expensive: P / E — 23,56, P / S — 2,25, and capitalization - 3.15 billion dollars. This creates good conditions for the pumping of shares, especially given the "halo of prospects".
Good bookkeeping. Contrary to the traditional chaos in the accounting departments and debts of startups, AEIS is pretty clean and tidy: in total, she has debts of 990.264 million dollars, of which 387.288 million must be repaid during the year. The money at her disposal is enough to close most of all debts: 547,923 mln in accounts plus 239 mln in counterparty debt and pending tax deductions. It's good: in an era of raising rates and more expensive loans, too much debt can scare investors away.
Can buy. Given all of the above, the company may well be bought. It might turn out like someone from the industrial conglomerates, as well as a private foundation.
Space for activism. Due to the strong drop in shares, it would be logical to expect an attack on the company by an activist investor. Here are the points he can push:
- The company pays 40 cents per share per year, what constitutes 0,48% per annum. It takes her less 15% annual profit. Given the good financial position of the company and its prospects, such an activist may well knock out a once-in-a-time dividend increase 5 - or at least make one-time large payments.
- An activist can force management to sell the company.
What can get in the way
hour of the wolf. Slightly less than half of the company's assets are located in Asia, she does business all over the world. Given the logistical difficulties and the rising cost of raw materials - and this is now the problem of the corporate sector in all countries, - the company's reporting may suffer.
old friends. The company's two largest customers account for a disproportionate share of its revenue.: familiar to us from Lam Research 10% и Applied Materials с 17,5%. Changing relationships with one of them could negatively affect AEIS reporting.
Can't wait. You can't wait for a significant increase in payouts.: recent experience 7 yo shows, that the company prefers to spend all the extra money on expanding and modernizing the business. This, certainly, correct from the point of view of AEIS as an enterprise, and so the potential activist will have to prepare for a long and hard campaign against the management of AEIS, to force him to give generous dividends to shareholders.
What's the bottom line?
Shares can be taken now by 84,47 $. And then there are three options.:
- wait for growth to 96 $. This is a fairly moderate goal., taking into account all the positive aspects, company related. Think, that we will reach it in the next 14 Months;
- wait for the stock to return to the level 117 $. Here it is better to focus on 3 years of waiting;
- hold shares 15 years and pray for them, as the company becomes the beneficiary of the development of the brave new world. Well, it's very possible., that she will increase payments. Although more likely, that during this time it will be bought.
