Why MACOM Technology Stock Popped 12% Wednesday

An analyst's upgrade buoyed investors' hopes for a turnaround at the semiconductor product specialist.

Rich Smith
Rich Smith
Jul 17, 2019 at 3:47PM
Technology and Telecom

What happened

Shares of Lowell, Massachusetts-based semiconductor company MACOM Technology Solutions Holdings (NASDAQ:MTSI) were up a respectable 12.5% as of 3:42 p.m. EDT Wednesday. You can thank the friendly analysts at Piper Jaffray for that.

This morning, Piper upgraded  MACOM stock from neutral to overweight on the belief that the stock's 36% price decline over the past year presents investors with a long-term opportunity.

Tumbling dice read buy and sell.

Image source: Getty Images.

So what

MACOM's sales declined 15% and it earned no profit in its fiscal second quarter, which it reported on two months ago. Piper, however, is hoping that MACOM's new management team will produce a recovery by focusing on cutting costs, maximizing cash flow, and exploiting the opportunity presented by the emergence of 5G technology.


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Now what

Will all of that be enough, though, to right the ship, and turn this tech component supplier from a sell into a buy?

I can't help but notice that MACOM is going on its third straight year of bottom-line loses right now, which certainly isn't a great situation. However, free cash flow did turn positive again in its fiscal Q2, and as a result, here at the year's halfway mark MACOM is generating positive cash profits -- $4.2 million year to date, according to S&P Global Market Intelligence.

Still, even run-rating that out to predict, say, $8.4 million in positive FCF for the year, this leaves MACOM stock selling for a triple-digit price-to-FCF ratio -- while analysts are still forecasting no better than 15% long-term earnings growth for the stock.

Will all due respect to Piper Jaffray, I don't see a whole lot to be optimistic about in numbers like these.