Today we have a speculative idea: take stock of sophisticated electronics manufacturer Amphenol (NYSE: APH), in order to capitalize on their rebound after the fall.
Growth potential and validity: 12,5% behind 16 months excluding dividends; 18% behind 2 years excluding dividends; 11% per year for 9 years excluding dividends.
Why stocks can go up: the company's business is favored by the industrial boom in the world and the company itself has excellent prospects.
How do we act: we take shares now by 73,79 $.
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.
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Investment editorial office
What the company makes money on
We have already published a successful idea for this company in 2021, and in it we analyzed the APH business in detail. Let's repeat only the main points:
- APH produces high-tech components for manufacturing plants.
- Its revenue is broadly diversified across industries. Most of the revenue comes from industrial production - 22% and automotive industry 17%. Least of all give broadband connection - 4% and commercial aircraft industry 3%.
- Over 70% the company's revenue is made in the USA. One of the company's largest markets is China with 28,99% proceeds.
Arguments in favor of the company
Fell down. Over the past few months, the company's shares have fallen heavily for no good reason.: from 87.94 to 73,79 $. This gives us the opportunity to pick them up based on the rebound.
There is nowhere more opportunistic. In most countries of the world, production figures are growing. At the same time, many large industrial enterprises intend to increase investments in the renewal of fixed assets. This allows us to hope, what a positive situation, which led to the successful completion of our first idea ahead of schedule, persists.
A high level of business diversification also contributes to this.: APH was aptly described in one review as "a seller of picks and shovels for virtually every industry". Long term, the company still looks just as interesting, as before: the world needs more and more high-tech hardware.
Not very expensive. Considering all of the above, that fact, that the company does not stand like a wing from an airplane, in itself is a great virtue: P / S she has 3,91, a P / It's about 27. It's not that cheap, but also not very expensive — it can attract institutional investors, valued successful, margin businesses with a good foundation. Capitalization at APH in the region of 43 billion, but it's not a problem: such investors, like funds and banks, no significant effort is needed to build these stocks.
Sometime later. In the long run, I would prepare for, that upon reaching a certain size, the company decides to spin off one or more divisions into separate issuers. This will make it possible for its shareholders to make good money., after all, the shares of individual APH divisions can grow faster. The logic of separation of large industrial conglomerates like General Electric pushes her to this..
What can get in the way
Accounting. The company is spending heavily on expansion - and this is reflected in its debt burden: it has 8.299 billion debts, of which 2.447 billion must be repaid within a year. Basically, there is enough money at the disposal of the company to close urgent debts: 1,197 billion in accounts and 2.454 billion debts of counterparties.
Dividends should also be considered.: the company pays 0,8 $ per share per year, what constitutes 1,12% per annum. She spends about 31,49% from its annual profit. Maybe, will have to reduce payments, to pay for the further expansion of the business and pay the debts. However, do not think, that cutting payments will greatly spoil the company's quotes: there is not much profit. But a large amount of debt can negatively affect its reporting.
Still the same China. China's industrial production has recently fallen. It was small, but still it may negatively affect APH reporting. Also, the sword of Damocles of anti-China sanctions constantly hangs over the company., which can also seriously complicate her life. Another jade-tinged sword of Damocles is a constant threat of the most severe quarantines in China: The leadership of the PRC is characterized by increased nervousness in this matter..
Supply chain dualism. The company quite successfully shifts the increase in the cost of raw materials, components and shipments to its customers - but it will not be able to do this indefinitely. Therefore, you need to be mentally prepared for a tangible decrease in the margins of its business in the next six months..
What's the bottom line?
We take shares now by 73,79 $. And then there are several options:
- wait for the stock to rise 83 $. Think, we will reach this level in the next 16 Months;
- wait 87 $, who asked for these shares back in December. Here you should be prepared to wait 2 of the year;
- keep shares next 9 years. If you have already taken them for the long term, now you have the opportunity to buy them.
