Today we have a speculative idea: take shares in Axcelis semiconductor business (NASDAQ: ACLS), in order to capitalize on the growth in demand for the goods and services of the company.
Growth potential and validity: 14% behind 14 Months; 10% per annum during 15 years.
Why stocks can go up: because semiconductors are a hot topic.
How do we act: take now 71,85 $.
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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What the company makes money on
Axcelis designs, production and maintenance of equipment for companies, producing semiconductor products. According to the 2020 report, 96,3% its revenue revolves around ion implantation, an important process in the semiconductor industry. Yet 3,7% revenue comes from other types of work.
Note: at the time of publication of the investment idea, the company had not yet uploaded the report for 2021 to the website, so there, where needed, we will look for information in the report for 2020, but whenever possible we will use the most recent data.
At the end of 2021, the company's revenue is divided into two segments:
- Equipment and spare parts — 95,77%. Segment gross margin — 44,91% from its proceeds.
- Services - 4,23%. This segment includes maintenance of equipment and other services..
Segment gross margin — 5,57% from its proceeds.
According to the 2020 report, revenue by country and region is divided as follows:
- USA - 10,7%.
- Asian-Pacific area - 81,17%.
- Europe - 8,13%.
Arguments in favor of the company
Promising. Over the past year, the semiconductor market has risen from sleep, and chip makers are ramping up production capacity. It lets us hope, that Axcelis will be loaded with orders for the next couple of years or more. After all, chips are now needed more and more like in electronic devices., as well as in conventional cars.
Clean accounting. The money in the company's accounts - more than $ 294 million - is more than enough to close all of its debts in the amount of 214.281 million. This is very good and gives hope, that the stock will attract the attention of investors, who, in anticipation of bets, are looking for good, margin businesses with minimal debt.
Latest Report. The company has been steadily increasing business profitability over the past five quarters, despite the logistical difficulties, the rising cost of raw materials and labor is now hitting the entire corporate sector. The company finished the last quarter better than expected, which means, she can deal with all these problems.
How does she do it, it is hard to say, but I think, what, because she works for marginal technology manufacturing businesses, she just puts the increase in costs in her price. And since Axcelis customers are swimming in money due to the growth in demand for semiconductors, then their willingness to spend money on such equipment is not affected by price increases.
Can buy. Company P / E — 24,6, P / S — 4,25 and capitalization of 2.38 billion dollars. This makes it an attractive target for a takeover by some larger semiconductor business, given the circumstances described above..
The most likely buyer is Applied Materials (AMAT), one of the largest players in the field of ion implantation. AMAT by capitalization is more than Axcelis by about 53 Times, and it can generally pay a significant part of the cost of Axcelis with its shares, although AMAT has a lot of money in the accounts.
Can pay. Given the favorable business environment and good financial position, the company could introduce if not a regular dividend, then at least periodic one-time payments - for example, near 2 $ per share per year.
What can get in the way
Concentration. According to the company's report for 2020, two large clients give separately more 10% her proceeds: South Korean Samsung Electronics and Chinese Semiconductor Manufacturing International (Minimum wage). unknown, who gives exactly how much. This concentration is bad., after all, a change in relations with one of the large clients can negatively affect the reporting of Axcelis. SMIC is generally on the US sanctions list - and therefore this distribution channel is constantly under threat..
You can run, but you can't hide. Logistics, the cost of raw materials and labor can still negatively affect the company, even though it hasn't happened yet.
Wuthering Heights. The company's shares rose by 80% in general and can be very volatile. Especially considering, that a significant proportion of the shares are in the hands of large funds: they may well decide to “take profits” and this will lead to a collapse in quotes.
Asia! The share of China in the company's sales is unknown, but it's definitely too big.. And that's the problem: Washington is extremely interested in, to interrupt the development of high-tech industries of the Chinese economy. Axcelis is just making hardware, necessary for one of the most high-tech and marginal types of work after chip design - the production of wafers and chips.
News of new sanctions could have a serious impact on Axcelis quotes - and a little later, sanctions will also affect reporting. One hope here, that the US government, in the event of tough sanctions against China, will still grant export licenses to Axcelis, so as not to ruin high-tech production inside America. But for quotes, the shock of Axcelis from the news about the sanctions will still be very hard.: I think, that stocks may fall in 2 Times.
Dividends are bullshit. High gross margin of the company - over 43% from revenue - depends on the level of advancement of its technologies. So I wouldn't count too much., that the company will introduce dividends. Even under pressure from an activist investor: for the latest 5 years, the company's shares rose by 345%, so the position of a hypothetical activist in the formulation "Axcelis does not create value for shareholders" will look too weak. But Axcelis will certainly want to spend the unspent money on developing its business in order to maintain a high level of its profitability in the future..
What's the bottom line?
Shares can be taken 71,85 $. And then there are two options.:
- wait for growth until 82 $. This is noticeably more, what they cost in early January - almost 77 $. But in the natural course of events, if everything goes like this, as it goes now, we will be able to reach the target price for the next 14 Months;
- keep shares next 15 years in sorrow and joy.
