In times of stock market volatility, it can be useful to focus on companies that have a track record of profitability. Those businesses tend to see less of a drawdown in their share price compared to high-growth tech stocks that rely on raising additional capital from investors.
With the Nasdaq 100 index down 11% year to date, now might be one of those moments. Semiconductor-service company Axcelis Technologies (ACLS 0.29%) released its full-year 2021 report on Feb. 7, and it revealed a near-doubling of its earnings per share compared to 2020.
As the semiconductor industry grows more critical to the modern economy through the digitization of consumer goods that require advanced computer chips, Axcelis faces a great opportunity to continue its incredible run of growth.
Image source: Getty Images.
Axcelis' milestone year
Not only did Axcelis Technologies generate 97% earnings growth in 2021, it also delivered $662.4 million in revenue -- the highest number since the company listed publicly in 2001. It was a 40% increase compared to 2020, and it was driven by strong demand for Axcelis' Purion line of ion implanters.
The company doesn't manufacture semiconductors itself. It supplies equipment critical to the fabrication process, and its products were in hot demand during 2021 from some of the world's largest producers across Europe and Asia. The pandemic-related lockdowns in many advanced economies throughout 2020 and 2021 led to a crippling shortage of chips, prompting manufacturers to expand their production capacity to fill demand -- and those expansions required more of Axcelis' equipment, driving the company's record revenue result.
Axcelis' Purion Power Series line is used to produce a range of semiconductor types, including those for automotive applications. New-car makers have cut manufacturing output over the last couple of years due to chip shortages, as vehicles are built with more digital features and therefore have a growing appetite for advanced semiconductors. It has sent car prices soaring, and Axcelis has helped to alleviate this by shipping multiple units of its Purion line to chip producers since September 2021.
A big financial result
Axcelis' 2021 earnings per share result of $2.88 handily beat analysts' expectations of $2.68, and in 2022, more company-record results are predicted.
|
Metric |
2021 |
2022 (Estimate) |
Growth |
|---|---|---|---|
|
Revenue |
$662.4 million |
$776.6 million |
17% |
|
Earnings per share |
$2.88 |
$3.66 |
27% |
Data source: Axcelis Technologies, Yahoo! Finance.
The elevated levels of profitability (earnings) are attributable to the company's highest-ever gross margin of 43.2% in 2021, which it expects will remain at around 43% in the first quarter of 2022. It means for every dollar of revenue, Axcelis made roughly 1.4% more gross profit in 2021 compared to 2020, so more money eventually flowed through to the bottom line. This theme was constant across the semiconductor industry, as soaring demand and low supply meant producers (and Axcelis) could charge higher prices.
Why the stock is a buy now
When the broader stock market hit its pandemic low point in March 2020, Axcelis Technologies stock traded at $13.60. It has since rocketed by 365% to $63.24 today; however, it's still cheap. Based on 2021 earnings of $2.88, the stock trades at a price to earnings multiple of 21.9, which is about 21% cheaper than its peers represented by the iShares Semiconductor ETF, which has a multiple of 27.9.
If investors are looking at estimated 2022 earnings, Axcelis' multiple shrinks to just 17 on a forward basis, making the stock look even cheaper.
It appears to be a great value given that semiconductor shortages, especially for the automotive sector, are set to persist this year. And, the company also finished an evaluation of a brand-new line of equipment to a top producer of memory chips in February, which could drive follow-on orders and further growth.
With the broader market still on shaky ground, Axcelis Technologies could be a great buy this year for its secure, profitable position and big upside potential.
