Being a socially responsible company is not a zero-sum game, in which increased social responsibility inevitably worsens your financial performance, and vice versa. Profits don't go out the window when you treat the environment better. Similarly, socially responsible investing is not a zero-sum game, in which your portfolio suffers under the weight of buying stakes in companies that are doing the right thing. So go ahead and consider investing in some socially responsible companies -- perhaps RF Micro Devices (NASDAQ:RFMD).
In general, socially responsible investments can be quite competitive with their counterparts. A 2011 study from the Harvard Business School, for example, looked at 18 years of data and found "strong evidence that firms emphasizing [socially responsible] practices significantly outperform similar firms that do not, as measured by both financial and stock market returns." And a 2014 study by asset management firm New Amsterdam Partners found "a positive linkage between stocks with higher ESG (Environmental, Social and Governance) ratings and superior returns and reduced price volatility."
On the social responsibility front, RF Micro Devices offers "RFMD Green Products" that "help to protect the environment by the elimination of potentially hazardous material from the products we sell that end up in commercial goods used by consumers." It noted other achievements in its last Sustainability Report, such as:
What's so socially responsible about RF Micro Devices?
Before examining its social responsibility, let's look at RF Micro Device's business. With a market capitalization near $4 billion, it's not a huge company. But it's a key player in radio-frequency technology, with its offerings enhancing mobile communications by improving connectivity and functionality of smartphones, wireless networks, broadband, and more.
- We share in the growing concerns of human rights abuses in the DRC [Democratic Republic of the Congo] countries and are actively working with our supply chain to certify that metals found in RFMD products are DRC conflict-free.
- The company is working to conserve water in its manufacturing facilities via initiatives such as improved reverse osmosis recovery, economizing water flows to air treatment systems, and minimizing process rinse water flows.
- These and other efforts have reduced our water use by more than 283 million gallons since 2007. This is enough water to run about 2,900 households for a year.
The company is also working to reduce hazardous emissions and hazardous waste, along with energy use.
Why might you invest or not invest in RF Micro Devices?
First, RF Micro Devices is merging with TriQuint Semiconductor (NASDAQ:TQNT), another semiconductor company focused on wireless chips, and the new company's name will be Qorvo. (TriQuint, like RF Micro Devices, is a supplier to Apple (NASDAQ:AAPL), able to enjoy tailwinds from heavy iPhone sales.) Many people, including Wall Street analysts, are bullish about the combination, and several analysts have recently issued or reiterated buy ratings on RF Micro Device's stock. Mike Walkley of Canaccord Genuity, for example, noted that "We believe the combined company can leverage significant cost synergies through consolidating fab facilities, optimizing R&D expenditures, and eliminating duplicate public company costs to generate gross and operating margin leverage."
The company recently exceeded Wall Street expectations with its second-quarter earnings report. Revenue rose 17% year over year (and 15% sequentially), while earnings per share more than doubled and profit margins grew. That's terrific, but a closer look reveals that revenue and earnings growth have been inconsistent. Worse yet, the company faces able competition from companies such as Qualcomm (NASDAQ:QCOM), with its deep pockets, and Skyworks Solutions (NASDAQ:SWKS), with much fatter profit margins.
Management, of course, is bullish, noting in the last earnings report: "RFMD is enjoying multiple diversified, long-term growth opportunities across markets, customers, and products. This is enabling RFMD to capture increasing content across a broad range of mobile data devices and outpace the growth rate of our underlying markets."
If you're looking for dividends, you're out of luck with RF Micro Devices, a young and growing company that needs to invest excess cash in itself. Dividends aren't everything, though. Perhaps the biggest reason to hesitate before jumping into RF Micro Devices stock, though, is its valuation. The stock has more than doubled over the past year, and with a recent P/E ratio near 80, it looks pricey; on the other hand, its forward-looking P/E, based on next year's earnings, is just 12.
Ultimately, while the company has its merits and is a good citizen, you might find more appealing investment opportunities elsewhere. RF Micro Devices could well perform spectacularly in the future; if you believe it will and can tolerate risk, go for it. Otherwise, perhaps add it to your watchlist.
Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, owns shares of Apple, Qualcomm, and Skyworks Solutions. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple, Qualcomm, Skyworks Solutions, and TriQuint Semiconductor. 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.