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Is Himax Technologies a Buy?

By Nicholas Rossolillo - Updated Apr 18, 2019 at 11:36PM

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2018 was a terrible year for the stock, but shares could rebound -- though probably only in the short term.

Check out the latest Himax Technologies earnings call transcript.

Display driver manufacturer Himax Technologies (HIMX 4.43%) didn't live up to expectations in the last year. Resurgent demand for smartphones fizzled at the end of 2018, and adoption of the company's 3D sensing technology for Android phones never materialized.

As a result, the business remained subject to wild swings in demand for the hardware that powers TVs, tablets, and smartphones. Himax's shares fell 67% on the year. The stock could be due for a much-needed rebound, but it's difficult to see the tech manufacturer as anything more than a risky short-term bet.

Flat revenue = falling profits

Though Himax posted slightly higher sales through the first three quarters of 2018, lower profit margin on product sold and higher operating expenses ate away at the bottom line.

Metric

Q1 2018

Q2 2018

Q3 2018

The 9-Month Period

Revenue

$163 million

$181 million

$188 million

$532 million

YOY increase (decrease)

5%

20%

(4%)

6%

Gross margin

22.5%

23.1%

23.5%

23%

YOY increase (decrease)

(0.6 p.p.)

(0.8 p.p.)

(2.1 p.p.)

(1.3 p.p.)

Operating expenses

$166.10 million

$180.87 million

$187.59 million

$534.56 million

YOY increase (decrease)

8%

19%

(3%)

7%

Earnings (loss) per share

($0.016)

$0.012

$0.005

$0.001

YOY change

NA

NA

(76%)

(96%)

P.p. = percentage point. Data source: Himax Technologies.

Himax has been working to diversify its offerings away from display driver sales, and early in 2018 there was buzz that 3D sensing -- the tech that powers things like facial recognition software on high-end smartphones -- could be a growth catalyst. The company put money into research and development, but as management stated during the third-quarter report, adoption of the feature has been low among smartphone makers.

A couple sitting on a couch watching TV.

Image source: Getty Images.

The primary reason for the lukewarm reception is high pricing for the 3D sensing package, as well as a lack of apps utilizing the feature. Undeterred, Himax has redoubled its efforts to develop a cheaper and easier-to-implement solution. Other promising areas include heads-up and digital displays for the auto industry, and 3D sensing for the security industry, but an eventual rebound in smartphone production looks like the closest event that could help the bottom line rebound meaningfully.

Short-term handling only

Himax thinks fourth-quarter revenue will increase as much as 5% over the third quarter, and gross profit margin should rise to 24.2% to 25.2%. However, management said that should equate to earnings per share of only $0.015 to $0.036. The stock's one-year forward price-to-earnings ratio is 20.8 -- hardly a value, even after the 2018 tumble.

Nevertheless, the tech manufacturer said it believes sales will rebound in 2019. If that transpires, the stock could see some upside in the near term. Such a move would be consistent with past up-and-down cycles over the years.

HIMX Chart

Data by YCharts.

But even with the stock selling off sharply, there isn't much in the way of promising growth catalysts -- a problem Himax has tried numerous times to solve, only to end in disappointment. The company's bread-and-butter is still basic hardware for displays, and there's little reason to believe that will change anytime soon. Thus Himax stock continues to look like a high-risk bet on a short-term swing back to the upside.

Nicholas Rossolillo and his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Himax Technologies, Inc. Stock Quote
Himax Technologies, Inc.
HIMX
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