Many investors gauge the strength of their portfolios by measuring their returns against the performance of the broader market or a specific index. This is often referred to as benchmarking, and in 2022, it doesn't take much to do better than the benchmark of the Nasdaq-100 technology index, which is down 22.7% so far.
While many individual technology stocks have tumbled further than that -- in some cases by 80% or more -- there's a cohort of companies that have fared better. Axcelis Technologies (ACLS -1.68%) is a semiconductor service company that crushed the Nasdaq-100 in 2021 with a 151% return, and while its stock is in the red this year, its 16.5% loss leaves its investors six percentage points better off than those who hold a fund that tracks the broader tech index.
Axcelis' outperformance is driven by its strong operational accomplishments. Here's why it's not too late to add it to your portfolio.
Image source: Getty Images.
Right place, right time
Computer chips -- aka semiconductors -- are at the heart of a wide array of products, from popular consumer electronics to vehicles of both the electric and internal combustion varieties. The lengthy COVID-19 pandemic has caused an ongoing shortage of chips because many producers in Asia and Europe temporarily shut down operations early during the crisis. They've been playing catch up ever since, and companies like Axcelis hold the keys to expanding their manufacturing capacity.
Axcelis doesn't make chips itself. Rather, it builds ion implantation equipment that is essential to the chip fabrication process. Its Purion machines are used in the production of chips for a variety of purposes, including what it calls power devices, specifically designed to handle the growing number of digital features inside new cars.
So far this year, Axcelis has announced several shipments to both new and existing high-profile customers around the world. Last month, it informed the market of a large shipment of Purion equipment to three new customers in the U.S., Europe, and Asia. And in April, it revealed multiple sales of its new Purion Dragon system to producers of memory chips (DRAM).
This specific area of the semiconductor industry is on the cusp of a growth surge, because 5G-enabled mobile devices use 50% more memory than their 4G predecessors, and electric vehicles are growing increasingly memory-hungry thanks to advancements in self-driving technology.
Soaring financial growth
Axcelis is innovating more than ever before to serve a chipmaking process that continues to grow in complexity, and it's delivering record financial results across the board. In the first quarter, the company revealed that its order backlog was at the highest level it has ever been, and said it was on track to deliver $850 million in revenue during 2022, a full year ahead of when it had forecasted hitting that milestone.
Axcelis is also extremely profitable. When a company's products are in high demand to the point there's an order backlog, it often has additional pricing power, which allows it to boost its gross profit margin. In the first quarter, Axcelis had a gross margin of 44.1%, which was a solid jump from the 42.5% it delivered in the prior-year quarter.
The strong increase in sales combined with an improving gross margin led to a more than fivefold increase in Axcelis' earnings per share between 2019 and 2021. And this year, analysts expect a further jump to $4.41 per share.
Axcelis might beat the market again this year
While Axcelis' stock is already performing better than the Nasdaq-100 index so far in 2022, there's plenty of uncertainty ahead.
But based on analysts' earnings expectations, its forward price-to-earnings multiple currently stands at just 14.6. That makes Axcelis stock about 35% cheaper than the Nasdaq-100, which trades at a forward multiple of 22.7.
Therefore, not only is Axcelis beating the market now, on a valuation basis, it still has a lot of catching up to do. That makes a strong case for its streak of outperformance continuing.
