The technology-component shortage is, unfortunately, a global phenomenon. And Singapore-based Kulicke and Soffa Industries (NASDAQ:KLIC) stock isn’t immune to supply-chain issues.
Founded way back in 1951, Kulicke and Soffa provides semiconductor and electronic assembly solutions. The company is known for developing interconnected solutions, which boost performance and power efficiency, reduce formfactor and promote assembly excellence, in semiconductor devices.
The company is an essential part of the chipmaking supply chain.
Right now, this company is working through several macro-level challenges. However, it’s also demonstrating that a 70-year-old business can still be an innovator.
But with KLIC down about 29% year-to-date (YTD), it’s easy to wonder: How did we get here, and where are we going?
Let’s dive in and take a closer look.
What’s Happening With KLIC Stock?
Unfortunately, there was no Cinderella story for KLIC stockholders during the past year.
Semiconductor stocks have struggled this year due to supply-chain disruptions, inflation, and investors turning cautious on high-growth stocks at a time when interest rates are rising.
During its third quarter in fiscal year 2022, the company achieved earnings of $2.09 per share, which topped analysts’ estimates for $1.59 per share by 31.4%.
However, looking forward to its fourth quarter in fiscal year 2022, KLIC expects revenue of about $280 million and earnings of about 93 cents per share. The outlook is lower than analysts’ current forecast for revenue of $369.2 million and earnings of $1.56 per share.
With the negative forecasted earnings and analysts cutting third-quarter estimates by 35% in the past two months, the stock has dropped to a “C” rating in my Portfolio Grader and buying pressure has dried up (giving it a “D” quantitative grade).
But it’s not all bad news. Income-focused investors should be glad to discover that Kulicke and Soffa pays a forward annual dividend yield of 1.74%.
Also, the company entered into a $150 million share repurchase program not long ago. Buybacks are often a good sign. That’s because they can indicate that a company’s executives are confident in the future of the business.
Thus, if Kulicke and Soffa is investing in itself, perhaps you might consider a long position as well.
Potential Growth
We’ve discussed third-quarter earnings and fourth-quarter forecasts, but let’s look to see whether the company is growing. After all, supply-chain bottlenecks and high inflation are valid concerns for today’s technology firms.
On Sept. 8, 2022, KLIC announced that it inked an agreement to acquire Advanced Jet Automation Co., Ltd. When the acquisition is complete, KLIC will own assets and operations of Advanced Jet Automation subsidiary Samurai Spirit, Inc.
Samurai Spirit is a leading developer and manufacturer of high-precision micro-dispensing equipment and solutions in Taiwan. The acquisition is meant to enhance KLIC’s semiconductor, electronic assembly and advanced display portfolio — and provide new access to the broader dispensing market.
So, there is potential for new growth for the company, especially as the dispensing equipment market is expected to reach $2 billion in 2023.
The acquisition is expected to close in the second quarter of 2023.
What You Can Do Now
As I have previously acknowledged, 2022 has put the volatility of KLIC stock on full display. Given the ongoing supply-chain issues and overall guidance getting lowered, KLIC could see some further volatility.
I do expect the semiconductor industry to rebound in the long run. The Semiconductor Industry Association noted that in 1990, U.S. producers accounted for 37% of the world’s semiconductor manufacturing capacity, while today that figure has dropped to 12%. Meanwhile, East Asia now has 75% of the world’s chip manufacturing capacity.
That is changing, as private companies are allocating huge investments in building out production capacity. In addition, the U.S. government is taking steps to address the country’s erosion of leadership in this sector. The Chips and Science Act, signed into law in August, provides $52 billion to incentivize companies to start manufacturing their chips in the United States.
While I made Kulicke and Soffa my pick in the InvestorPlace’s 10 Best Stocks for 2022 contest at the beginning of the year, it’s currently sitting with a “C” rating in my Portfolio Grader — making it a hold.
However, an earnings surprise in the fourth quarter, a successful acquisition in the beginning of 2023 and/or a semiconductor rebound could send shares higher long term.
On the date of publication, Louis Navellier did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.