Shares of STMicroelectronics (STM -1.93%) fell 17% in October 2018, according to data from S&P Global Market Intelligence. Europe's largest semiconductor company took a big hit near the end of the month due to a solid third-quarter report paired with cautious management comments about the state of the global chip market.
STMicro's third-quarter sales rose 18% year over year to land at $2.52 billion, just ahead of Wall Street's $2.5 billion consensus forecast. Earnings also exceeded the analyst view, jumping 58% higher to land at $0.41 per share. But revenue guidance for the next period stopped at roughly $2.6 billion, pointing to a far slower 6% annual growth rate. Management pointed to "soft market conditions" in China, and share prices fell more than 13% that day.
Analyst firm Baird immediately slashed its target price for STMicro from $28 to $10 per share, significantly below the $14 share price at the time. The firm noted that STMicro's lead times between orders placed and products delivered are tracking far slower than the company's peers in the analog semiconductor sector, which leads to lower revenue growth and raises the risk of losing orders to nimbler competitors with similar chip solutions.
Hoping to make the most of its lagging share prices, STMicro launched a $750 million share buyback program in early November. Making full use of that policy, which comes with a three-year time limit, would reduce STMicro's share count by 5.2% at current share prices. Market makers shrugged off that announcement and the stock still trades below $14 per share today.
STMicroelectronics' investors have taken a 39% haircut over the last six months and the stock is trading at the bargain-bin valuation of 12 times trailing earnings or 13 times free cash flows. I would call the stock an interesting investment idea at these prices.