News release below:
There is no question that the price ramp in these stocks has been long and sustained (which is why I have tempered my trading, as I expect a pull back.) However, the move up has come from extremely low prices and valuations. I would add that the valuations of some of the sector's strongest players appear to be high, when using their current or the last year's results as the metric.
My point is that a current price to sales ratio of 2 or 3 (for MTSN, FSII, EGLS as a few examples) could easily translate into a price to sales ratio of substantially less then one IF AND WHEN sales return to the sector. We are seeing the signs that the recovery is barely getting started but that improvements are being seen. Last year's selling off of viable, sound companies drove valuation metrics down to extremely low levels. Anyone who's been following this thread knows all the reasons and arguments made to justify the wholesale carnage. I'm making the reverse argument, since I believe we are at the start of the new upward cycle.
Now if you are talking about some of the P/S ratios that are in the high teens or greater, then yes, I tend to think that such high valuations will ultimately have to come down to earth or we will need to see future demand improve dramatically over (the already bullish) short term expectations.
Btw, no offense taken but I thought I'd toss you back a zinger, too... :)
Applied Materials says industry M&A could be slow
Thursday September 18, 1:13 pm ET
SAN FRANCISCO, Sept 18 (Reuters) - High stock prices will hinder merger and acquisition activity in the $20 billion semiconductor equipment industry as it recovers from its worst slump ever, the chief financial officer of chip equipment company Applied Materials Inc.(NasdaqNM:AMAT - News) said on Thursday.
Still, Joseph Bronson said Applied Materials will look to build its consumable products business through acquisitions as well as internal growth,
"I think there'll probably not be a lot of consolidation as we get into an upturn because of valuation," Bronson told investors at a Banc of America Securities (News - Websites) conference.
"In the equipment space a lot of things could have happened but didn't happen," he added, because of executive personalities and "ego," as well as stock valuation.
Investors have been betting for more than half a year on a chip industry recovery. The Philadelphia Stock Exchange semiconductor index (Philadelphia:^SOXX - News) has gained almost 80 percent since February.
Shares in Applied Materials have moved almost in lock-step with that rally, gaining just over 80 percent since early March, boosting the company's value to $34.5 billion.
Santa Clara, California-based Applied Material, the largest provider of the equipment used to build circuits on discs of silicon, has honed in on growing its consumable products business, Bronson said.
Products such as pads and slurries are regularly reordered by chip producers, providing a steadier stream of revenue.
"We have a major focus on making that business bigger," Bronson said. In response to a question, he said the company expected to grow the business both through acquisitions and through internal development.
Sales of equipment used to build, test and package microchips has suffered in the past three years following a period of over-investment in the late 1990s by chip makers.
Bronson said the company's spare parts business has picked up, which could suggest that chip factories are busier and operating closer to their capacity limits. |
