Thursday, September 27, 2018

With The Semi Cycle Clearly Dipping, Is It Time To Revisit AEIS?

When I last wrote about Advanced Energy Industries (AEIS), I noted that while I think this is a strong company in the power components and subsystems space, the risk of further deterioration in the near-term outlook for semiconductors and semiconductor equipment skewed the risk too negatively in view. The shares are down another 10% since then, along with a significant cut to third quarter guidance, and there is no longer much pushback from readers on whether there really is a slowdown underway.

It’s really easy to get an itchy trigger finger with high-quality plays like AEIS and VAT (OTCPK:VACNY), as it’s typically only during these downturns that you get an opportunity to buy in at better valuations, and you don’t want to miss the eventual rebound. On the other hand, it’s pretty common for analysts and investors to misjudge the length and depth of down-cycles at the beginning, and it’s frustrating to buy in at the bottom only to discover another 20% or more downside.

I continue to believe the long-term value of AEIS shares is well above current levels (in the mid-$60s to mid-$70s), but I would also point out that these shares have traded as low as 1x tangible book in the not-so-distant past, suggesting another 50% downside if things really go sour in the market. I don’t expect that to happen, and I believe the long-term drivers of chip demand remain sound, but with 2019 possibly shaping up as a tougher year too, investors considering these shares should at least go in with their eyes open to the downside risks.

Read the full article:
With The Semi Cycle Clearly Dipping, Is It Time To Revisit AEIS?

No comments: