What happened
Shares of Axcelis Technologies (ACLS -3.41%) took a 16% tumble last month, according to data provided by S&P Global Market Intelligence. Growth stocks took a serious breather to kick off 2022 after the Federal Reserve indicated it would be raising interest rates to try to tame inflation. Higher rates lower the present value of a stock, with high-growth companies the most sensitive to this effect.
Thus Axcelis, which provides important equipment for the chip manufacturing industry, was dragged down by market forces last month.
Image source: Getty Images.
So what
Axcelis develops and manufactures ion implantation systems. Ion implantation is an important step in semiconductor manufacturing in which ions of a different element are inserted into silicon to create better control of electrical currents. Axcelis competes with chip fab equipment giant Applied Materials (AMAT -2.79%) in this department.
Thanks to the chip shortage -- caused by an explosion in demand for semiconductors as well as effects from the pandemic -- chipmakers are scrambling to increase their manufacturing capacity. That has meant strong sales for tiny Axcelis' ion implantation systems, leading to the highest annualized revenue rate since it went public in 2000.
ACLS revenue. Data by YCharts. TTM = trailing 12 months.
Now what
There's no telling how long the chip shortage will last, but chip manufacturers and their customers are drawing up plans to increase manufacturing capacity for years to come. New factories and current factory expansion take years to ramp up to full production, so Axcelis could enjoy strong revenue performance for quite some time. In fact, at the company's investor day in December, management outlined how it thinks its new ion implantation systems will take Axcelis to $1 billion in annual revenue in the next three years.
That's a notable goal given that this chip equipment company has only made $579 million in revenue over the last trailing-12-month period. If management's predictions ring true, 80% sales growth over the next few years is nothing to balk at -- especially not for a stock currently trading for just 22 times trailing-12-month free cash flow. Be sure to keep Axcelis Technologies on your radar. Just bear in mind that small-cap stocks like Axcelis can exhibit higher-than-average volatility, even if they grow at a rapid pace.
