The news just keeps getting better and better for Amkor Technology (AMKR -1.50%) investors this week. On Monday, Amkor crushed earnings estimates for its fiscal 2020, reporting record sales and earnings that sent its stock up nearly 8%.
Then yesterday, S&P announced it is adding the stock to its S&P MidCap 400 stock index, an upgrade of sorts, as it's indicative of a heavier market capitalization for the stock.
And today? Amkor got a price target hike from Citigroup -- and the stock is up another 16.5% as of 12:20 p.m. EST.
TheFly.com has the details. In an early-morning announcement, Citi announced it is raising its price target on Amkor stock from $13 to $15.
Now, you may have noticed that Amkor stock costs closer to $21.50 right now -- and Citi has noticed that, too, which is one reason why it maintains a sell rating on the stock. Even so, the analyst's comments seem supportive, arguing that Amkor stock deserves a premium valuation multiple based on its impressive financial performance and balance sheet strength.
That being said, Citi also has reservations about the company, including the fact that it sees rising competition in semiconductor testing and packaging, which could weigh on Amkor's profit margins over the long term.
And, of course, there's the valuation to consider. Amkor doesn't look excessively expensive when valued on its $338 million in generally accepted accounting principles (GAAP) earnings (less than 16 times trailing earnings). But when you factor in the company's more than $400 million in net debt and relatively weak free cash flow ($217 million, or just 64% of reported income), Amkor stock's enterprise value-to-free-cash-flow (EV/FCF) ratio rises past 26.
Weighed against analysts' projected 16.4% long-term growth rate, therefore, a stock that looks reasonably priced -- or even cheap -- at a price-to-earnings-growth (PEG) ratio of less than 1.0 starts looking a little pricier at an EV/FCF/growth ratio of 1.6.
Long story short, Amkor stock may not be expensive yet -- but it's not quite as cheap as it looks.
This article represents the opinion of the writer(s), who may disagree with the "official" recommendation position of a Motley Fool premium advisory service. We're motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.