2017 has been a wild year for Himax Technology (NASDAQ:HIMX) investors. As I wrote at the beginning of the year, pessimism surrounding the company was overdone, and shares rebounded in a big way, up roughly 60% so far this year as of this writing. Things have gotten volatile in recent months, though, and the tide may be turning against the Taiwanese chipmaker's stock.
2017 in review
2016 ended on a sour note for Himax. Remember the Microsoft (NASDAQ: MSFT) HoloLens? Probably not, because it seems that the world isn't quite ready for the advanced augmented reality device. Himax was a supplier of parts for HoloLens, and declining revenues paired with fading prospects for a major augmented reality customer sent shares into a nosedive that lasted through February.
Though sales notched year-over-year declines in the first three quarters of 2017, Himax shares got a boost anyway because revenues came in better than expected. The pessimism that set in late in 2016 reversed as sales and profits showed promise of rebounding, and a new business opportunity overshadowed the otherwise less-than-stellar numbers.
That new business opportunity was with Qualcomm (NASDAQ: QCOM), which partnered with Himax for its 3D sensing tech -- a crucial component for AR and VR technology. Facial recognition in Apple's (NASDAQ: AAPL) new iPhones was also exciting as it seems that Himax's hardware is a key component in enabling that as well.
Alas, as of late Himax stock has begun to backtrack once again. The company still derives most of its business -- 72% of revenue in the last reported quarter-- from display drivers in smartphones, tablets, and TVs. While that segment continues to recover, it's still well off of highs, and the non-driver business that includes AR/VR and 3D sensing isn't growing fast enough to pull sales or profits out of the current rut.
A seesaw for a stock
With that as a backdrop, party-crashing investment firm Citron Research decided to lambast Himax recently via Twitter. The firm said that Himax management has a history of fraud and that the market should question the company's financial figures. Himax denied the claim and said that Citron had not been in contact before making the claims. Shares have dropped from their recent high-water mark since the Citron comment.
Citron's claim may very well be baseless; it's important to remember the firm specializes in calling out companies it believes are overpriced. Nevertheless, it may be true that the market did get overoptimistic on Himax this year and has run up share prices beyond what is reasonable.
This has happened before; for example last year before the aforementioned HoloLens-induced pullback. Himax may have some irons in the fire, but it's too soon to say if they will pay off. In the meantime, the company has not yet proven that its recent quarterly growth is sustainable.
It's also of note that Himax has not scaled its operations anywhere near peak efficiency yet. That shows up in the quarterly profit margins that swung wildly when sales fluctuated over the last few years. Himax stock has had run-ups like this before, only for prices to come crashing down again when high hopes were not met.
The claim that Himax management is involved in some sort of scandal seems doubtful, but the company does have a dubious track record for maintaining any momentum. After bouncing off of depressed levels, 2017 was a great run for this stock, but I'd be leery about investing any money at this point.