When it comes to advanced chipmakers, most investors think of industry-leading stocks like Advanced Micro Devices or Nvidia. But opportunities in the semiconductor sector extend far beyond just the manufacturing giants.
Axcelis Technologies (ACLS 0.29%) is a semiconductor-service company that makes equipment crucial to the fabrication process, and it supplies some of the world's largest producers.
After hitting a pandemic-low stock price of $13.60 in March 2020, Axcelis stock rocketed 470% to a high of $77.60 in December 2021. Since then the stock has taken a tumble amid the broader tech sell-off, and that presents an opportunity for investors to get involved.
Image source: Getty Images.
Driving automotive semiconductors
The pandemic triggered lockdowns across many Asian and European economies throughout 2020 and 2021, causing production shutdowns for major semiconductor manufacturers. Upon reopening, these companies found themselves with significant supply shortages, especially since demand continued to skyrocket.
As consumer goods grow increasingly intelligent, they need more-advanced processing power (think about the incredible capabilities of our smartphones, for example). But a key source of demand for these chips comes from much larger consumer goods: cars. New vehicles have an abundance of luxury digital features, including infotainment systems and safety sensors, and these require highly specialized semiconductors.
The chip shortage hit the new car industry so hard that dealership inventories collapsed across the globe, sending prices in both the new- and used-car markets soaring as consumers clamored to buy vehicles.
Axcelis is helping to alleviate the issue by pivoting its focus to its power device line of ion implanters. Since September 2021, the company has made two announcements highlighting large shipments of this equipment to semiconductor manufacturers around the world, helping them expand their production capacity to meet demand from carmakers.
Powerful revenue and earnings growth
The incredible demand for Axcelis' equipment has sent the company's revenue soaring, materially boosting its profits as a result.
|
Metric |
2020 |
2022 (Estimate) |
CAGR |
|---|---|---|---|
|
Revenue |
$474 million |
$774 million |
27% |
|
Earnings per share |
$1.46 |
$3.66 |
58% |
Data source: Axcelis Technologies, Yahoo! Finance. CAGR = compound annual growth rate.
The year 2020 marked a turning point for Axcelis, after two prior years of stagnant growth. But the supply crunch won't be the company's only driver, as the rapid pace with which technology is advancing suggests demand for powerful computing capabilities will only continue to grow.
With that said, in the most recent reporting period, the third quarter of 2021, the company did make special mention of the power device segment, which generated significant market expansion. Axcelis also noted it will continue building extensions to this equipment to ensure it's meeting its customers' evolving requirements.
Why you should buy the stock
After hitting its record high of $77.60 a share, Axcelis' stock has declined about 22% to $60, creating a buying opportunity.
When the company officially reports its fourth-quarter 2021 earnings in early February, analysts expect it will have generated $2.68 in earnings per share (EPS) for the full year. At the current share price of $60, that places its stock at a price-to-earnings (P/E) multiple of 22.
The iShares Semiconductor ETF, which is representative of the broader semiconductor sector, trades at a P/E multiple of 31. That makes Axcelis' stock 29% cheaper than its peers.
But it gets better. If the company delivers on 2022 expectations of $3.66 in EPS, its multiple would shrink to just 16 (assuming its current share price remained the same).
With soaring revenue and earnings growth, combined with the broad consensus that semiconductor sector strength will persist this year, there's a great case for buying Axcelis Technologies here especially if you have a long-term investment horizon.
