Shares of Kulicke & Soffa Industries (KLIC 0.50%) rose 39.8% in February, according to data provided by S&P Global Market Intelligence. The semiconductor-equipment stock rose with generally bullish news around the semiconductor space, along with the release of the company's quarterly earnings report in the beginning of the month.
Kulicke & Soffa's quarterly results were terrific, blasting through analyst expectations for both revenue and earnings per share. For the quarter, revenue surged 50.8% year over year, and adjusted earnings per share rocketed 196.6% for good measure.
There are a number of positive tailwinds for the company right now, which holds a dominant position in certain equipment for advanced packaging. Not only is the semiconductor industry booming, with projected shortages to last throughout 2021, but advanced packaging intensity is also rising as chip architectures become more complicated.
After February's rise, the stock has pulled back with a lot of the technology sector due to fears over rising interest rates. At first glance, that may seem warranted, as Kulicke & Soffa sports a P/E ratio over 30. However, the stock is actually cheaper than it appears on a GAAP basis.
First, the company has a big net-cash position, totaling $576 million as of the end of last quarter. That's over 20% of its current market capitalization!
Second, Kulicke & Soffa also has some extra noncash intangibles amortization resulting from past acquisitions, equating to about $2 million per quarter -- significant, since last quarter's adjusted operating income was about $60 million.
Third, even though last quarter was a blowout, and the company is seen as cyclical, it also guided for strong sequential growth next quarter as well. On the conference call with analysts, CEO Fusen Chen said that due to increased complexity and capital intensity for things like 5G versus 4G chipsets, baseline revenue should make a step-change higher, from around $750 million over the past three years to about $1 billion. That means that last quarter's level of earnings could be more indicative of the future.
Given that last quarter saw adjusted EPS of $0.86, that annualizes to $3.44, which means the current stock price would equate to about 12.4 times earnings. But taking out the company's extra cash, that ratio would fall below 10.
That's quite cheap indeed; and given Kulicke & Soffa's continued buybacks and 1.3% dividend, it's practically a value stock after last week's pullback.