Diodes IncDIOD$73.26 Buy
Texas InstrumentsTXN$171.93 Buy
NXP Semiconductors NVNXPI168,73 $
Diodes (NASDAQ: DRINK) is a manufacturer of semiconductor products, whose profit beats all the boldest forecasts for several quarters in a row. At the end of 2021, the company's net profit grew by an impressive 233% year to year.
What he earns
The company headquarters is located in the USA, California. However, development and marketing centers are located in different parts of the world.. Production facilities are mainly concentrated in Shanghai.
The company manufactures and sells diodes, Transistors, temperature sensors, power management, converters. Its products are used in such devices, as digital media players, smartphones, tablets, Laptops, Displays, mobile phones, digital cameras and set-top boxes.
Among the company's major customers is Honeywell, Samsung Electronics, LG Electronics и Philips.
Revenue by region looks like this:
- Asian-Pacific area - 80%.
- North America - 8%.
- Europe - 12%.
The share of direct sales is 34%, the rest is sold through distributors. The company's business is well diversified by sales segments.
The computing segment is growing faster than others: he added 140% for the year. Industrial and automotive sectors boast high growth rates, thanks to the continued shortage of automotive chips.. Diodes' revenue in these segments is growing much faster than the market., this is good.
Volume of the global semiconductor market by segments, billion dollars
| 2020 | 2025 | CAGR | |
|---|---|---|---|
| Smartphones | 116 | 162 | 5,72% |
| Personal computers | 100 | 121 | 3,23% |
| Cars | 39 | 82 | 13,19% |
| Data Centers | 76 | 119 | 7,76% |
Company revenue by segments
| Revenue share | Revenue growth for the year | |
|---|---|---|
| Compute segment | 29% | 140% |
| Industry | 24% | 66% |
| Automotive production | 12% | 65% |
| Consumer segment | 18% | — |
| Communications | 19% | — |
In addition to expanding the company's presence in the automotive and industrial sectors, another long-term driver of growth is the power management product family, which includes AC/DC converters. The company offers customers energy-saving and highly integrated semiconductor products..
The market for power management integrated circuits is constantly growing. It's a growing demand for consumer goods, automobiles and industry needs, which uses a power management IC.
Diodes focuses on developing power management integrated circuits for such applications, like LCD TVs and LED lighting. Therefore, to expand the product line in the second quarter of 2021, the company acquired Lite-One Semiconductor - LSC.
The acquisition of LSC allowed Diodes to increase its bottom line and reduce the number of shares outstanding by 13,7%. Moreover, the company not only acquires business, but also invests in its expansion. For example, behind 12 months, LSC production increased by 78%.
Projected, the average annual growth rate of the Smart TV market from 2020 to 2025 will be 16,52%. And the volume of the global market for LED lighting until 2030 will grow by 12,9% in year. Since Diodes is a strong player in these markets, then the long-term potential increases.
Company multipliers
| Diodes | Industry average | |
|---|---|---|
| P / E | 18 | 24 |
| Forecast P / E 2022 | 13 | 18 |
| P / S | 2,38 | 2,84 |
| P / B | 3,5 | 2,9 |
| Total debt / capital | 0,22 | 0,28 |
| Margin | 13,09% | 8,46% |
Compared to industry averages, then it is fairly estimated by the main multipliers, and according to the forecast P / E 2022 even cheaper than competitors.
The financial health of the company is not a concern, even with recent acquisitions. The ratio of total debt to equity is below the industry average and is less than 50%.
Total debt quadrupled in 2020 with LSC purchase, however, after nine months, it almost halved. Now there is more free money on the company's accounts, what it owes to creditors.
In 2021, revenue and profit made a strong increase of 46% and 233%, respectively. And this did not happen because of the low base of 2020., and by expanding production. Relative to 2019, revenue and profit also increased by 44 And 49%.
Diodes has the highest revenue growth among competitors in the past five years. However, the company does not pay dividends, and lower margins, than Texas Instruments Therefore, such an underestimation of Diodes relative to Texas Instruments is justified. NXP has similar numbers, and in comparison with it, the company is currently valued fairly.
Company valuation compared to competitors
| Diodes | Texas Instruments | NXP | |
|---|---|---|---|
| P / E | 18 | 20 | 27 |
| Forecast P / E 2022 | 13 | 17,53 | 13 |
| Average revenue growth rate for 5 years | 13,89% | 6,53% | 3,1% |
| Total margin | 13,06% | 42% | 17,25% |
| Average dividend yield for 5 years | — | 2,8% | — |
Business growth rate in million dollars and percent
| 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|
| Revenue | 1214 | 1249 | 1229 | 1805 |
| Revenue growth rate | 15,18% | 2,88% | −1,60% | 46% |
| Profit | 104 | 153 | 98 | 229 |
| Profit growth rate | — | 47,12% | −35,95% | 233% |
| Margin | 8,5 | 12,2 | 7,8 | 13,09% |
Financial health of the company, million dollars
| 2019 | 2020 | 2021 | |
|---|---|---|---|
| Cash in accounts | 264 | 327 | 373 |
| Total debt | 111 | 451 | 301 |
Forecasts
In 2020, the company presented a development strategy until 2025. Diodes said, which aims to achieve sales of 2.5 billion by 2025 with a gross margin 40%. To do this, the company will need to ensure an average annual growth of 15-16% in the period from 2021 to 2025.
This year, according to the results of the first three quarters, Diodes provided an average growth of at least 50% year to year, what speaks of leading results and the reality of the prospects for the implementation of the strategy. Another argument: The semiconductor market continues to suffer from supply shortages amid supply chain disruptions.
Risks
Diodes products are in demand in all areas of life - this is a company in the defense sector of the economy. But still, the fact that, that in the summer of 2021, key investors sold Diodes shares for more than 7.5 million. The sale can be considered justified in view of the fact that, that stocks have risen a lot in recent years, the company does not pay dividends.
80% Diodes receives revenue in the Asian region, where the production of the main customers is concentrated, therefore, there is always a risk of worsening trade relations between the US and China, which will lead to a restriction on trade turnover and a drop in revenue.
Output
Diodes is an example of a fairly valued company in the market, where there is a high demand for its products. The strategy is aimed at revenue growth, and recent reports underline the commitment and the real possibility of achieving the targets.
If you choose to invest in Diodes, it is necessary to monitor the situation in the semiconductor market and product prices. And do not forget about geopolitics and the state of relations between the US and China., where the company receives the main revenue.
