May 30, 2024


The value of truth

This Automotive Tech Stock Is Up 80% So Considerably in 2023 — Is It Too Late to Invest in?

4 min read

indie Semiconductor (INDI -3.15%) carries on to impress. When several firms that went public by means of SPAC in 2021 are significantly underwater, this tiny chip designer proceeds to promptly scale its organization on the back again of related car and electrical automobile engineering. As of this creating, the inventory has rallied about 73% so much in 2023, bringing it close to in which it built its debut in community markets nearly two yrs in the past.

Automotive technology is going to be a top financial investment pattern in the coming years, but the run-up in indie Semi’s stock has me a bit nervous. Is it also late to buy?

A massive rally, but from the place?

Investors cheered on indie’s Q4 2022 earnings update. Earnings was $33 million (or $132 million on an annualized basis), assembly management’s steering supplied a several months back. More importantly, however, the adjusted gross income margin on products marketed was 52.2%, exceeding the expectation for “the 51% assortment.”

Administration proceeds to be expecting quick revenue advancement, and even more gain margin enlargement to go along with it. The outlook for Q1 2023 is for “$160 million annualized revenue operate-fee” — or $40 million in revenue. Profits in Q1 2022 was just $22 million.

Section of the enhance will come from a partial quarter of gross sales from the just lately introduced acquisition of GEO Semiconductor, yet another tiny chip designer that gives pc vision digicam chips generally for car manufacturers in Japan and South Korea (like Honda, Hyundai, and Nissan, to name a few).  

The expectation is for a further quarter of altered gross margin in the 52% array at indie, up from 47.4% the year prior. Bottom-line profitability (all over again, on an altered non-GAAP foundation, or generally approved accounting principles), is anticipated in the next 50 % of 2023.

If you are keeping score, indie documented modified net losses of $63.2 million in whole-12 months 2022 and $42.4 million in 2021. Indeed, indie is on a roll if it can produce on the altered profitability entrance.

A caveat to all that growth

Do bear in head, even though, that indie’s progress warrants a footnote. Some of its rapid growth in the previous pair of many years is owing to a string of acquisitions, as it has sought to spherical out its portfolio of chips used in innovative driver aid systems (ADAS) and other tech associated to EVs and digital infotainment displays. Along the way, it designed liberal use of new stock issuance to do so.

Thus, on a per-share basis, indie’s revenue expansion just isn’t rather as impressive as it seems at to start with glance. 

Facts by YCharts.

This influence could begin to reasonable — a little bit. indie began a $50 million inventory repurchase prepare very last quarter. And for its hottest GEO acquisition, it lifted credit card debt fairly than relying entirely on inventory to fund it.

GEO will be taken around for $180 million, fifty percent in income and 50 % in new indie stock. At the conclude of December 2022 (which would not replicate the outflow of cash for GEO however), indie had $322 million in funds and quick-phrase investments and $160 million in debt.

Granted, incorporating GEO to the blend is expected to accelerate indie’s initiatives to get by itself rewarding. The very long-expression outlook for its ADAS, electric motor vehicle and charging, and in-cabin infotainment technologies remains dazzling. But the significant operate-up in inventory price tag seems overdone to me.

indie at the moment trades for about 12 occasions the expected annualized revenue run level for Q1 2023, and extra than 24 instances altered gross financial gain (centered on the outlook for 52% modified gross margins in Q1). All of that growth is also staying diluted by a significant amount of new shares becoming issued to boot.  

indie Semiconductor has shown me adequate that I continue to be over-all bullish on its very long-expression prospective buyers. But this is a small enterprise operating in a extremely big, remarkably competitive emerging industry for vehicle tech. The inventory appears to be overvalued proper now. I’ve taken a minor revenue off the desk and sold a couple of shares from my incredibly compact posture in indie Semiconductor. 

I don’t believe it truly is way too late to own the enterprise, but I believe that endurance will be rewarded right after a significant enhance in inventory value on good, but not that good, money news.

Nicholas Rossolillo has positions in Indie Semiconductor. His purchasers might have positions in the stocks outlined. The Motley Fool has no place in any of the shares stated. The Motley Fool has a disclosure policy.

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