What happened

Shares of Lattice Semiconductor (NASDAQ:LSCC) climbed 110.8% in the first half of 2019, according to data provided by S&P Global Market Intelligence. Despite modest growth on the top line, the company has been reducing costs, including paying down debt, to boost profitability. At the same time, management is shifting resources to focus on higher-growth opportunities in 5G wireless, servers, industrial and automotive applications, and the Internet of Things.

These efforts are paying off, with adjusted (non-GAAP) earnings per share more than doubling in the first quarter year over year, following a 200% jump in 2018.

A computer circuit board.

IMAGE SOURCE: GETTY IMAGES.

So what

The stock was trading for a forward price-to-earnings ratio of about 15 entering the year, which looks like a bargain in hindsight, especially with the exploding profitability the company is experiencing right now.

What's clear is that investors are starting to value Lattice as a long-term, secular growth story, as opposed to a cyclical chip stock, and they might be right to do so. The ramp-up of 5G is in the early stages, and management sees rising demand for its products across the industrial and auto markets, a shift to low-power computing, and the rollout of a new server generation.

Now what

Management is focused on continuing to reduce the debt burden, which will lower interest expense further and help improve the bottom line. At the end of the first quarter, the company had $130 million in cash and a total of $233 million in debt. Lattice incurred interest expense on its debt of $5 million in the quarter, compared to $7.4 million in net income. There is substantial upside to net income as management pays down debt and reduces the interest expense.

The company doesn't provide full-year guidance, but analysts currently expect adjusted earnings to improve from $0.33 in 2018 to $0.48 this year, while revenue is expected to be up 1% year over year. The stock currently trades for a forward P/E of 31 based on this year's earnings estimate.