While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Himax Technologies (NASDAQ:HIMX) sank 6% this morning after Chardan Capital downgraded the flat panel chip maker from buy to neutral.
So what: Along with the downgrade, analyst Jay Srivatsa planted a price target of $12 on the stock, representing about 17% worth of downside to yesterday's close. While momentum traders might be attracted to the stock's sharp run-up over the past six months, Srivatsa thinks that much of Himax's growth prospects are already baked into the valuation.
Now what: According to Chardan, Himax's risk/reward trade-off is rather unattractive at this point. "Most investors appear to be waiting eagerly for the launch of Google Glass and several other head mount displays, many of whom, could feature HIMX's LCoS Microdisplays," noted Srivatsa. "However, in the absence of compelling applications, we believe many of these products are unlikely to witness mass adoption. Furthermore, depending on the price, ease of use and potential backlash, many consumers may shun these head mount displays." When you combine those concerns with the stock's 40-plus P/E, it's tough to disagree with Chardan's cautious call.
Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.