Why Vicor's stock plummeted
Shares of power module manufacturer Vicor (VICR 2.78%) crashed hard on Wednesday. As of 1 p.m. ET, the stock was down 28.1% from Tuesday's closing price. The company reported solid third-quarter results on Tuesday evening, but many investors hit the sell button due to signs that sales would be weaker in the next few quarters.
Forget the latest results -- the near future looks bleak
Vicor's top line increased by 4.6% year over year, landing at $107.8 million. Earnings were $0.37 per share, a penny a share below the prior-year period's reading. The average analyst was looking for earnings near $0.31 per share on revenue in the neighborhood of $106.6 million.
So far, so good. Results like these tend to send stock prices skyward -- but Vicor's chart pointed straight down to the basement anyhow.
You see, the company's order bookings continued to run low. Vicor disclosed a book-to-bill ratio below 1.0, and its backlog of unfilled orders fell 53% year over year. Management expects spot-market orders to keep revenues relatively steady, but the company's visibility into future sales is murky at best.
Investors hate uncertainty, and that's why Vicor's stock is swooning Wednesday.
Is Vicor set for a rebound?
The lack of firm order bookings and a shrinking backlog balance looks concerning, but these could be temporary issues that set Vicor up for a triumphant rebound in coming quarters. CEO Patrizio Vinclarelli explained that the company's order flow is in flux as several contracts of game-changing scale are under negotiations. In particular, he sees robust long-term demand for Vicor's 5G base station power platforms, with lots of ongoing system designs moving into commercial-scale production over the next two years.
As a result, the order flow may be unpredictable currently, but Vicor should do fine in the long haul.
"We may see substantial increases [in order bookings]," Vinclarelli said on the earnings call. "There is a range of scenarios that include a pretty steep climb. But then again, it may take a while longer."
Three months ago, the CEO was hoping for a return to stronger orders in 2023's third or fourth quarter -- that clearly hasn't happened yet. Vinclarelli may be off when it comes to nitty-gritty details such as the exact time frames in his updated forecast, too, but I do agree that the company's longer-term prospects look good.
Vicor's stock price is down 28% year to date. Shares are trading at the reasonable valuation of 33 times trailing earnings and 4.1 times sales. It's not the fire sale to end all fire sales, but this looks like a good time to start or grow a Vicor position. It may have a bit of a rough patch immediately ahead of it, but it should get back to full speed in 2024 and beyond.
