Himax Technologies (HIMX +10.61%) may not be a household name in the technology sector, but this Taiwan-based company has set the stock market on fire over the past couple of years after the demand for its semiconductor chips that are used in several types of displays took off.
Investors have piled into Himax stock to take advantage of multiple end markets that include smartphones, tablets, automotive, televisions, laptops, monitors, virtual reality (VR) devices, smart homes, and others that use its display drivers, touch controllers, 3D sensing solutions, and image sensors.
HIMX data by YCharts.
The surprising part is that Himax stock remains dirt cheap despite reporting outstanding growth and clocking eye-popping stock market gains. But the more important thing to note is that Himax still has a lot of room to grow its business thanks to the markets it is serving. Let's see why.
What's driving Himax Technologies' growth?
Himax released its 2021 third-quarter results on Nov. 4, revealing a sharp increase in revenue and earnings. The company's Q3 revenue shot up 75% year over year to $421 million, while adjusted earnings came in at $0.79 per share, which was a massive increase over the prior-year period's adjusted earnings of just $0.07 per share.
Himax management said on the November earnings conference call that this impressive growth was driven by strong sales across all three of its major business segments: large-display drivers, small- and medium-display drivers, and nondriver products.
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The large-display driver business accounted for 28% of Himax's top line in Q3, and its revenue more than doubled over the year-ago period. The segment's terrific growth was driven by a spike in demand for its chips that are used in televisions (TVs), notebooks, and monitors. Remote working and online education were the driving factors behind the increase in Himax's notebook and monitor driver shipments, while the demand for high-end TVs also drove the segment's revenue higher.
The small- and medium-display driver business, which was Himax's largest segment as it produced nearly 60% of its revenue, grew 66% year over year. The automotive business was the biggest growth driver for this segment, recording a 150% year-over-year increase in revenue. Tablet and smartphone sales also headed higher. Himax reported a 75% year-over-year increase in tablet-related revenue thanks to the company's strong position in the non-iOS tablet market, while smartphone revenue was up 20% over the prior year.
Himax points out that it commands a "leading market share" in the non-iOS tablet space, and the company gets 22% of its total revenue from selling drivers to tablet OEMs (original equipment manufacturers). So, Himax's two biggest business segments were in fine form last quarter, and the company's guidance indicates that the good times are here to stay.
The chipmaker expects revenue to increase 6% sequentially in the fourth quarter at the midpoint of its guidance range. That would translate into $446 million in Q4 revenue, which would be an increase of nearly 62% over the prior-year period's revenue of $275.8 million. Adjusted earnings are expected to land between $0.78 and $0.83 per share, which would be a massive jump over the year-ago period's figure of $0.19 per share.
More importantly, it won't be surprising to see Himax sustain such outstanding growth in the long run.
Why investors can expect more upside
Citing third-party estimates, Himax points out that it commands a 10% share of the overall display-driver market after Novatek, Samsung, and SiliconWorks. The good part is that the company is gaining market share in key areas such as automotive, where the demand for display drivers is increasing thanks to advanced infotainment systems and virtual cockpit applications.
More specifically, Himax controlled a third of the automotive display-driver market in the third quarter of 2021, up from 26% in the prior-year period. The company shipped more than 1 million TDDI (touch and display-driver integration) chips to the automotive industry in Q3 2021 and expects this business to grow exponentially in 2022 thanks to the design wins it has scored at automakers and OEMs.
In fact, Himax expects the automotive segment to become its largest source of revenue this year on the back of supply agreements that the company has in place. The chipmaker's chips are used by leading automakers such as Mercedes-Benz and Jaguar. This puts it in a solid position to take advantage of the automotive display market's terrific growth that's expected to generate nearly $40 billion in revenue by 2027 as compared to $18 billion in 2020, according to a third-party estimate.
The smartphone market is going to be another long-term catalyst for Himax stock as sales of smartphone TDDI chips are expected to jump to 954 million units in 2025 as compared to 829 million units in 2020. The chipmaker claims to have secured several new design wins with tablet and smartphone makers. As leading Chinese smartphone makers, such as Vivo, Oppo, Xiaomi, and Huawei are Himax customers, the company seems well-placed to take advantage of the smartphone opportunity.
Why the stock is a great buy right now
Himax Technologies stock is dirt cheap despite the company's amazing pace of growth and the massive upside it has delivered in the past year. The stock has a price-to-earnings ratio of 6.6, while the forward earnings multiple stands at 5. Himax stock's price-to-sales ratio stands at 1.6.
These multiples make Himax stock a steal right now as it is trading at a huge discount when compared to the S&P 500's earnings multiple of 29 and sales multiple of 3.28. Given that Himax Technologies' hot growth is here to stay, it looks like an ideal bet for investors looking to buy a tech stock on the cheap.
