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Is GT Advanced Technologies a Buy?

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It seems that no matter what GT Advanced Technologies (Nasdaq: GTAT  ) does, the market won't give the stock any sort of sustained rally. A big buyback hasn't helped, and even a P/E ratio under 7 isn't a good enough value to keep the stock from within striking distance of a 52-week low.

So I'll take a step back from the day to day and ask: Is GT Advanced Technologies a buy at this price?

A look under the hood
At its core, GT Advanced Technologies is an equipment and solutions provider of sapphire and silicon crystalline growth systems. The company competes with other equipment makers, such as Aixtron (Nasdaq: AIXG  ) and Veeco Instruments (Nasdaq: VECO  ) , to provide equipment that makes raw materials for the solar and LED markets, primarily in China.

The solar market, in particular, has driven the company's growth in recent years but has become a weakness recently. Manufacturers have bought so many polysilicon reactors and PV crystallization growth furnaces that the market is oversaturated with supply. In the short term, that poses a challenge for GT Advanced Technologies' ability to make sales into this market.

In LEDs, the company is a newcomer to a highly competitive market with multiple technological options. But GT has built a $908 million sapphire backlog extremely quickly in this market. This could be the market that pushes GTAT's stock forward.

Technology for the future
Taking the next leap forward is always key in highly competitive markets like solar, and GT is making strides to keep up. The company's MonoCast Technology, now available to customers, will make solar cells that are as efficient as monocrystalline cells but cost as much as multicrystalline.

The next step is advancing the company's Cz technology, which will be a huge leap forward when phosphorous-doped cells are made. When launched, this could be a leap forward in solar efficiency, while maintaining low costs. When this technology is launched, customers including Yingli Green Energy (NYSE: YGE  ) and Trina Solar (NYSE: TSL  ) will be clamoring to get their hands on it, because efficiency is the biggest differentiator in solar right now.

A strong balance sheet
While GT is struggling to increase sales in these oversaturated markets, it isn't as if the company is on the brink of collapse. Revenue was down 42% to $153.0 million in the last quarter, but the company managed a $0.12 profit per share. The company also had $303.1 million in cash and no debt as of last quarter. That cash is currently being put to work by buying $100 million of stock, which will reduce share count by about 10%.

The current lull in demand should be short lived for GT Advanced Technologies, and since the company is still in a strong financial position and making a profit, I think now is a great time to buy. I'm going to keep my outperform CAPScall on GT and think it will pay off given a long enough time frame.

Interested in reading more about GT Advanced Technologies? Add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium has no position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw.

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Read/Post Comments (2) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 22, 2012, at 1:46 PM, chcharron wrote:

    GT Advanced is really a Buy for the following reasons :

    First, it is trading at only 4.8 times the forecast earnings.

    Second :

    We read yesterday that Trina Solar is considering a U.S. factory. It is pretty sure that it will build it because the company last year had about 17 percent of the market in America. This year, it said that it expects to "reinforce or raise” that figure. Also the company received the highest tariff from the U.S. Commerce Department. And guess who is a big supplier of Trina ? GT Advanced Technology. We can read it in the financial statements and we can even see it here on the web site of the company of Trina : Actually, the stock of GT Advanced is very shorted : almost 7 days on Feb 29th. It would need only a contract from Trina to GT Advanced to make the stock jump high and fast.

  • Report this Comment On March 25, 2012, at 11:03 PM, gabeazy wrote:

    Except for the very real possibility that analysts' consensus on earnings proves lofty, given the threat of order cancellations and push-outs for GT's equipment. I think you will have a lower entry ponit on this one in a year.

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