There’s a chip in everything nowadays, which is why the global semiconductor market – already at $573 billion in 2022 – is estimated to hit $1.4 trillion by 2029.
But while most investors are understandably focused on the companies that make the chips themselves, today, we’re going to be looking at a company that’s “hidden” in the semiconductor supply chain.
Today’s daily stock pick manufactures equipment that is crucial to the chip fabrication process. And here’s a great thing about its business – it is much less exposed to the cyclical nature of the semiconductor industry.
That’s because its customers are the semiconductor companies themselves, which need to stock up on its equipment if they want to increase their longer-term production capacity. In short, this stock benefits from the semiconductor companies planning their way around the cyclical nature of the market.
A few more plus points – this stock has been absolutely defying the market, more than doubling over the past year. It’s also been crushing earnings and has a backlog that’s worth a third of its entire market cap. With stats like this, this is a stock you want to be paying close attention to.
Axcelis Technologies, Inc. (ACLS)
Axcelis provides ion implantation solutions to semiconductor companies, which is what allows the chip wafer to achieve conductivity in the first place. Its signature solution is its Purion Platform, which is protected by a strong intellectual property portfolio.
Its stock has absolutely defied the market for the past year – returning a solid 116% in a struggling market – and for good reason.
For FY2022, it reported a stunning 39% increase in top-line revenue, with its earnings per share nearly doubling from $2.94 to $5.54. And its first-quarter 2023 results gives even further cause for optimism – another 25% increase in revenue, a result that came in significantly ahead of guidance.
The company also has a backlog of $1.27 billion – an all-time high – and a figure that is already almost 30% higher than its revenue for the entirety of 2022. Compared to its market cap of just under $4 billion, that puts its backlog at roughly a third of its value.
This means even with the incredible growth in its stock over the past year, Axcelis still looks like it has plenty of room to run. While its current price-to-earnings ratio of 21 may not seem cheap, it’s worth noting that the NASDAQ-100 index has an average P/E ratio of 27 – implying a further growth of about 30% for it to match the index average.
To your wealth,
Felix @ Ace of Investing
