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Amkor’s stock price has taken a beating over the past six months, shedding 53.1% of its value and falling to a new 52-week low of $14.11 per share. This might have investors contemplating their next move.
Is now the time to buy Amkor, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Despite the more favorable entry price, we're cautious about Amkor. Here are three reasons why you should be careful with AMKR and a stock we'd rather own.
Why Do We Think Amkor Will Underperform?
Operating through a largely Asian facility footprint, Amkor Technologies (NASDAQ:AMKR) provides outsourced packaging and testing for semiconductors.
1. Revenue Tumbling Downwards
Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Amkor’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 5.6% over the last two years.
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Amkor’s revenue to stall. Although this projection indicates its newer products and services will spur better top-line performance, it is still below the sector average.
3. Low Gross Margin Reveals Weak Structural Profitability
In the semiconductor industry, a company’s gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.
Amkor’s gross margin is one of the worst in the semiconductor industry, signaling it operates in a competitive market and lacks pricing power. As you can see below, it averaged a 14.6% gross margin over the last two years. That means Amkor paid its suppliers a lot of money ($85.36 for every $100 in revenue) to run its business.
Final Judgment
We see the value of companies furthering technological innovation, but in the case of Amkor, we’re out. Following the recent decline, the stock trades at 7.3× forward price-to-earnings (or $14.11 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.