Please ensure Javascript is enabled for purposes of website accessibility

Why Kulicke & Soffa Stock Rose 39.8% in February

By Billy Duberstein - Mar 9, 2021 at 9:20AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The semiconductor equipment stock rose on blowout earnings.

What happened

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.

A tool places a processor delicately into a printed circuit board.

Image source: Getty Images.

So what

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.

Now what

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Kulicke and Soffa Industries, Inc. Stock Quote
Kulicke and Soffa Industries, Inc.
$50.01 (0.50%) $0.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.