Growth Opportunities At Renesas Still Being Underappreciated

Renesas Electronics (OTCPK:RNECF) (OTCPK:RNECY) has been actively restructuring the business over the last five years, driving substantially better margins and cash flow, but investors continue to treat this company like a sluggish legacy vendor of commoditized semiconductors. While I do see risk from competitors like Infineon (OTCQX:IFNNY), onsemi (ON), NXP Semiconductors (NXPI), and STMicroelectronics (STM), I think it’s overly conservative to assume that Renesas is nothing more than a share-donor at this point, and I think the market is undervaluing both the revenue growth potential and the margin/profit/cash flow value of that revenue growth.

Since my last article, the shares (the U.S. dollar-denominated ADRs) have done a little better than the SOX, and I think today’s valuation is attractive. The biggest caveat now is the upcoming downturn or at least “adjustment process” in the semiconductor sector, as inventories are catching up and order cancellations are starting to appeal. That could make for a turbulent 12-24 month period (which arguably started eight months ago), but I think patient investors will like what Renesas does over time.

 

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Growth Opportunities At Renesas Still Being Underappreciated